Search Results
Journal Article
Interest Rate Control Is More Complicated Than You Thought
Setting the fed funds rate is just one step. The Fed also has to deal with the discount rate and the interest rate paid on reserves. Throw in a floor system (with a subfloor!) and overnight reverse repos, and you?ve got a process that is anything but simple.
Journal Article
Neo-Fisherism: A Radical Idea, or the Most Obvious Solution to the Low-Inflation Problem?
Central banks around the world are struggling with inflation rates that are below their targets. According to conventional central banking wisdom, interest rate cuts should increase inflation, but that?s not working. Maybe?by Irving Fisher?s logic?increasing nominal interest rates increases inflation.
Working Paper
Money and dynamic credit arrangements with private information
The authors construct a model with private information in which consumers write dynamic contracts with financial intermediaries.
Journal Article
Monetary Policy Normalization in the United States
Because of the Federal Reserve?s unconventional approaches to monetary policy during the Great Recession and recovery, the Fed now finds itself in an unconventional situation. Short-term nominal interest rates have been close to zero for more than six years, and the Fed?s balance sheet is currently more than four times as large as in 2007. This article explains how and why the Fed got into this situation and the challenges this creates in returning Fed policy to ?normal??a state in which the Fed?s nominal interest rate target is above zero and its balance sheet is reduced in size.
Working Paper
Scarcity of Safe Assets, Inflation, and the Policy Trap
We construct a model in which all consolidated government debt is used in transactions, with money being more widely acceptable. When asset market constraints bind, the model can deliver low real interest rates and positive rates of inflation at the zero lower bound. Optimal monetary policy in the face of a financial crisis shock implies a positive nominal interest rate. The model reveals some novel perils of Taylor rules.
Working Paper
Current Federal Reserve Policy Under the Lens of Economic History: A Review Essay
This review essay is intended as a critical review of Humpage (2015), and it expands on the issues raised in that volume. Federal Reserve Policy during the financial crisis, and in its aftermath are addressed, along with the relationship to historical experience in the U.S. and elsewhere in the world.
Working Paper
Scarce collateral, the term premium, and quantitative easing
A model of money, credit, and banking is constructed in which the differential pledgeability of collateral and the scarcity of collateralizable wealth lead to a term premium ? an upward-sloping nominal yield curve. Purchases of long-maturity government debt by the central bank are always a good idea, but for unconventional reasons. A floor system is preferred to a channel system, as a floor system permits welfare-improving asset purchases by the central bank.
Working Paper
Keynesian inefficiency and optimal policy: a new monetarist approach
A simple model of monetary/labor search is constructed to study Keynesian indeterminacy and optimal policy. In the model, economic agents have trouble splitting the surplus from exchange appropriately, and we consider monetary and fiscal policies that correct this Keynesian inefficiency. A Taylor rule does not imply determinacy, nor does it support an efficient outcome, in general. Optimal policies yield an efficient and determinate allocation of resources, but equilibrium policy actions, wages, and prices are indeterminate at the optimum.
Working Paper
Credit markets, limited commitment, and government debt
A dynamic model with credit under limited commitment is constructed, in which limited memory can weaken the effects of punishment for default. This creates an endogenous role for government debt in credit markets, and the economy can be non-Ricardian. Default can occur in equilibrium, and government debt essentially plays a role as collateral and thus improves borrowers? incentives. The provision of government debt acts to discourage default, whether default occurs in equilibrium or not.
Working Paper
Interest on Reserves, Interbank Lending, and Monetary Policy
A two-sector general equilibrium banking model is constructed to study the functioning of a floor system of central bank intervention. Only retail banks can hold reserves, and these banks are also subject to a capital requirement, which creates ?balance sheet costs? of holding reserves. An increase in the interest rate on reserves has very different qualitative effects from a reduction in the central bank?s balance sheet. Increases in the central bank?s balance sheet can have redistributive effects, and can reduce welfare. A reverse repo facility at the central bank puts a floor un- der the ...