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Author:Carlstrom, Charles T. 

Discussion Paper
Inertial Taylor rules: the benefit of signaling future policy

We trace the consequences of an energy shock on the economy under two different monetary policy rules: a standard Taylor rule where the Fed responds to inflation and the output gap; and a Taylor rule with inertia where the Fed moves slowly to the rate predicted by the standard rule. We show that with both sticky wages and sticky prices, the outcome of an inertial Taylor rule is superior to that of the standard rule, in the sense that inflation is lower and output is higher following an adverse energy shock. However, if prices alone are sticky, things are less clear and the standard rule ...
Policy Discussion Papers , Issue Apr

Journal Article
Does the Fed cause Christmas?

A discussion of the relationship between money and output, with emphasis on the possibility that changes in output precede changes in money.
Economic Commentary , Issue Jan

Journal Article
Stock prices and output growth: an examination of the credit channel

When stock market values fall, we know that investors expect lower economic growth in the future. But can stock market declines actually affect future growth? There is some evidence that they can-through the credit channel.
Economic Commentary , Issue Aug

Working Paper
Co-movement in sticky price models with durable goods

In an interesting paper Barsky, House, and Kimball (2005) demonstrate that in a standard sticky price model a monetary contraction will lead to a decline in nondurable goods production but an increase in durable goods production, so that aggregate output is little changed. This lack of co-movement between nondurables and durables is wildly at odds with the data and occurs because, by assumption, durable goods prices are relatively more flexible than nondurable goods prices. We investigate possible solutions to this puzzle: nominal wage stickiness and credit constraints. We demonstrate that by ...
Working Papers (Old Series) , Paper 0614

Journal Article
Expected inflation and TIPS

When inflation-indexed Treasury securities were first introduced, economists hoped that they could be used to measure expected inflation easily. The only difference between securities that were indexed to inflation and those that were not was thought to be the extra compensation regular securities had to pay for what the market thought inflation would be. By now it is pretty clear that inflation-indexed Treasuries differ from regular securities in other ways that show up in the yields. This Commentary suggests what these are and discusses a method of correcting for them.
Economic Commentary , Issue Nov

Working Paper
Loan sales as a response to market-based capital constraints

A model of bank asset sales in which information asymmetries create the incentive for unregulated banks to originate and sell loans to other banks, rather than fund them with deposit liabilities. Private information implies that bankers can fund local loans only to the extent that their capital can absorb potential losses. Loan sales are effectively a means of employing nonlocal bank capital to support local investments.
Working Papers (Old Series) , Paper 9313

Journal Article
Enterprise liability: a prescription for health care reform?

A look at how the cost and quality of medical services in the United States would be affected by enterprise liability, a malpractice reform proposal that would 1) transfer liability in malpractice cases from the doctor to the patient's health care plan and 2) institute no-fault malpractice insurance.
Economic Commentary , Issue Jul

Discussion Paper
Oil prices, monetary policy, and the macroeconomy

Every U.S. recession since 1971 has been preceded by two things: an oil price shock and an increase in the federal funds rate. Bernanke, Gertler, and Watson (1997,2004) investigated how much oil price shocks have contributed to output growth by asking the following counterfactual question: Empirically how much would we expect oil price increases to have contributed to output growth if the Fed had kept the rate constant instead of letting it increase? They concluded that, at most, half of the observed output declines can be attributed to oil price increases. Most were actually caused by funds ...
Policy Discussion Papers , Issue Apr

Working Paper
Monetary policy in a world without perfect capital markets

This working paper examines a theoretical model in which an entrepreneur?s net worth affects his ability to finance current activity. Net worth, in turn, is determined by asset prices, which can be affected by monetary policy. In this environment, the central bank plays a welfare-improving role by responding to asset price and technology shocks.
Working Papers (Old Series) , Paper 0115

Journal Article
The benefits of interest rate targeting: a partial and a general equilibrium analysis

An argument that an interest rate peg is desirable because it mitigates the distortions that arise in a monetary economy, and that money growth should be procyclical in order to achieve the interest rate peg.
Economic Review , Issue Q II , Pages 2-14

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