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Journal Article
Monetary Policy and the Output Gap
Overestimating how far the economy is away from its potential unnecessarily risks delaying the end of unusual monetary accommodation.
Journal Article
Sovereign debt: a modern Greek tragedy
The authors of this article provide a general introduction to the concept of sovereign debt?including the seductive nature of borrowing and the strategies associated with default?before analyzing the current debt crises in Europe. They focus on Greece?s current woes but also discuss Portugal, Ireland, Italy, and Spain. The authors also discuss the environment in the United States, which has a high debt burden of its own, and present fiscal choices for policymakers and taxpayers.
Journal Article
Economic Realities and Consequences of the COVID-19 Pandemic—Part II: The Economy and Fiscal Policy
The economy is showing both positive and negative reactions to shutdown measures.
What Are the Risks for Future Inflation?
U.S. inflation has surged in recent months. What are some of the upside and downside risks for future inflation?
Working Paper
Government policy in monetary economies
I study how the general and specific details of a micro founded monetary framework affect the determination of policy when the government has limited commitment. The conduct of policy depends on the interaction between the incentive to smooth distortions intertemporally and a time-consistency problem. In equilibrium, fiscal and monetary policies are distortionary, but long-run policy is not afflicted by time-consistency problems. Policy variables in specific applications of the general framework react similarly to variations in fundamentals. Nevertheless, resolving certain environment ...
Journal Article
Making Ends Meet on the Federal Budget: Outlook and Challenges
With the advent of every new administration come numerous proposals to fix the federal budget, mostly involving tax code overhaul, entitlement reform and curbs on government debt. Invariably, these proposals get toned down during congressional review and often die before becoming a reality. With the various plans currently floating around, it seems like a good time to review the state and future of the federal government?s accounts.
Working Paper
Rehypothecation and Liquidity
We develop a dynamic general equilibrium monetary model where a shortage of collateral and incomplete markets motivate the formation of credit relationships and the rehypothecation of assets. Rehypothecation improves resource allocation because it permits liquidity to flow where it is most needed. The liquidity benefits associated with rehypothecation are shown to be more important in high-inflation (high interest rate) regimes. Regulations restricting the practice are shown to have very different consequences depending on how they are designed. Assigning collateral to segregated accounts, as ...
Journal Article
The Economic Impact of COVID-19 around the World
This article provides an account of the worldwide economic impact of the COVID-19 shock. In 2020, it severely impacted output growth and employment, particularly in middle-income countries. Governments responded primarily by increasing expenditure, supported by an expansion of the supply of money and debt. These policies did not put upward pressure on prices until 2021. International trade was severely disrupted across all regions in 2020 but subsequently recovered. For 2021, we find that the adverse effects of the COVID-19 shock on output and prices were significant and persistent, ...
Where Might Inflation Head?
Excess savings created from past federal aid indicate consumption will likely remain high. This suggests inflationary pressures may persist despite the Fed’s tightening.
Journal Article
A Closer Look at Federal Income Taxes
Tax cuts for the middle class, even minor ones, would imply big declines in revenue. Closing the deficit by taxing the rich would require major tax hikes.