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Working Paper
Sticky Leverage: Comment
We revisit the role of long-term nominal corporate debt for the transmission of inflation shocks in the general equilibrium model of Gomes, Jermann, and Schmid (2016, henceforth GJS). We show that inaccuracies in the model solution and calibration strategy lead GJS to a model equilibrium in which nominal long-term debt is systematically mispriced. As a result, the quantitative importance of corporate leverage in the transmission of inflation shocks to real activity in their framework is 6 times larger than what arises under the rational expectations equilibrium.
Discussion Paper
Financial Conditions and Risks to the Economic Outlook
Financial conditions have swung considerably over the past two and half years. They moved from very accommodative levels in late 2021 to providing a significant drag on economic activity in 2022 and 2023. Since early this year, they eased moderately amid monetary policy communications signaling that the federal funds rate had likely reached its peak for this monetary policy tightening cycle.
Discussion Paper
Convenience Yield as a Driver of r*
The natural rate of interest, or r*, corresponds to the short-term real interest rate that is consistent with full employment and price stability, after all temporary shocks have abated. The most popular framework to estimate r* is Laubach and Williams (2003) and Holston, Laubach, and Williams (2017, 2023) (henceforth HLW).