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Working Paper
Monetary Policy and the Great COVID-19 Price Level Shock
Andolfatto, David; Martin, Fernando M. (2025-07-28)
We employ a small-scale dynamic general equilibrium model to analyze the surge in inflation following the COVID-19 pandemic. A calibrated version of the model is used to assess U.S. monetary and fiscal policy over the 2020–2024 period and to estimate the economic and welfare consequences of alternative policy scenarios. The analysis suggests that the large fiscal transfers of 2020–2021 were broadly welfare-improving, albeit larger than necessary. Given the fiscal stance in place, optimal monetary policy would not have generated a materially different price level dynamic. While monetary ...
Working Papers , Paper 2025-004

Report
Shotgun Wedding: Fiscal and Monetary Policy
Sargent, Thomas J.; Bassetto, Marco (2020-04-08)
This paper describes interactions between monetary and fiscal policies that affect equilibrium price levels and interest rates by critically surveying theories about (a) optimal anticipated inflation, (b) optimal unanticipated inflation, and (c) conditions that secure a “nominal anchor” in the sense of a unique price level path. We contrast incomplete theories whose inputs are budget-feasible sequences of government issued bonds and money with complete theories whose inputs are bond-money strategies described as sequences of functions that map time t histories into time t government ...
Staff Report , Paper 599

Working Paper
The Causal Effect of Debt on Interest Rates
Bhatt, Abhik; Diercks, Anthony M.; Eyal, Benjamin; Skaperdas, Arsenios (2026-05-26)
This paper uses a natural experiment to measure the causal effect of an expected debt-financed fiscal stimulus on interest rates. We find that a 1 percentage point increase in the expected US debt-to-GDP ratio leads to an increase of about 1-2 basis points in the longer-run neutral rate (r∗) and of about 2–3 basis points in the 10-year Treasury term premium. Our results validate estimates from a common time-series approach that regresses long-term forward interest rates on long-term projections of government debt, where the exclusion restriction does not apply.
Finance and Economics Discussion Series , Paper 2026-031

Report
Optimal Age-Based Vaccination and Economic Mitigation Policies for the Second Phase of the Covid-19 Pandemic
Glover, Andrew; Heathcote, Jonathan; Krueger, Dirk (2022-01-18)
In this paper, we ask how to best allocate a given time-varying supply of vaccines across individuals of different ages during the second phase of the Covid-19 pandemic . Building on our previous heterogeneous household model of optimal economic mitigation and redistribution (Glover et al., 2021), we contrast the actual vaccine deployment path, which prioritized older, retired individuals, with one that first vaccinates younger workers. Vaccinating the old first saves more lives but slows the economic recovery, relative to inoculating the young first. Vaccines deliver large welfare benefits ...
Staff Report , Paper 636

Working Paper
Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program
Zarutskie, Rebecca; Zlate, Andrei; Minoiu, Camelia (2021-12-17)
We study the effects of the Main Street Lending Program (MSLP)—an emergency lending program aimed at supporting the flow of credit to small and mid-sized firms during the COVID-19 crisis on bank lending to businesses. Using instrumental variables for identification and multiple loan-level and survey data sources, we document that the MSLP increased banks' willingness to lend more generally outside the program to both large and small firms. Following the introduction of the program, participating banks were more likely to renew maturing loans and to originate new loans, as well as less ...
Finance and Economics Discussion Series , Paper 2021-078

Working Paper
Understanding Lowflation
Andolfatto, David; Spewak, Andrew (2018-09-01)
Central banks are viewed as having a demonstrated ability to lower long-run inflation. Since the financial crisis, however, the central banks in some jurisdictions seem almost powerless to accomplish the opposite. In this article, we offer an explanation for why this may be the case. Because central banks have limited instruments, long-run inflation is ultimately determined by fiscal policy. Central bank control of long-run inflation therefore ultimately hinges on its ability to gain fiscal compliance with its objectives. This ability is shown to be inherently easier for a central bank ...
Working Papers , Paper 2018-24

Working Paper
Optimal Age-Based Vaccination and Economic Mitigation Policies for the Second Phase of the COVID-19 Pandemic
Heathcote, Jonathan; Krueger, Dirk; Rios-Rull, Jose-Victor; Glover, Andrew (2021-12-17)
In this paper we ask how to best allocate a given time-varying supply of vaccines during the second phase of the Covid-19 pandemic across individuals of different ages. Building on the heterogeneous household model of optimal economic mitigation and redistribution developed by Glover et al. (2021), we contrast the actual vaccine deployment path that prioritized older individuals with one that first vaccinates younger workers. Vaccinating older adults first saves more lives but slows the economic recovery relative to inoculating younger adults first. Vaccines carry large welfare benefits in ...
Research Working Paper , Paper RWP 21-15

Working Paper
Asset Purchases in a Monetary Union with Default and Liquidity Risks
Foerster, Andrew; Traum, Nora; Bi, Huixin (2026-07-03)
We develop a nonlinear two-country monetary union model with endogenous sovereign default and financial intermediation to study the effects of targeted asset purchases, and expectations of such programs, during sovereign debt crises. Default risk increases with government debt and shifts in investors’ perceptions of fiscal solvency. We calibrate the model to Italy and Germany during the 2012 European debt crisis; it reproduces key features of the data, including the periphery-core divergence in investment, output, and sovereign yields. Cross-border transmission depends on the ...
Research Working Paper , Paper RWP 24-13

Working Paper
Redistribution and the Monetary–Fiscal Policy Mix
Yang, Choongryul; Bhattarai, Saroj; Lee, Jae Won (2021-03-01)
We show that the effectiveness of redistribution policy in stimulating the economy and improving welfare is directly tied to how much inflation it generates, which in turn hinges on monetary-fiscal adjustments that ultimately finance the transfers. We compare two distinct types of monetary-fiscal adjustments: In the monetary regime, the government eventually raises taxes to finance transfers, while in the fiscal regime, inflation rises, effectively imposing inflation taxes on public debt holders. We show analytically in a simple model how the fiscal regime generates larger and more persistent ...
Finance and Economics Discussion Series , Paper 2021-013

Report
The Monetary and Fiscal History of Brazil, 1960-2016
Kehoe, Patrick J.; Ayres, Joao Luiz; Guillen, Diogo; Garcia, Marcio (2018-12-20)
Brazil has had a long period of high inflation. It peaked around 100 percent per year in 1964, decreased until the first oil shock (1973), but accelerated again afterward, reaching levels above 100 percent on average between 1980 and 1994. This last period coincided with severe balance of payments problems and economic stagnation that followed the external debt crisis in the early 1980s. We show that the high-inflation period (1960-1994) was characterized by a combination of fiscal deficits, passive monetary policy, and constraints on debt financing. The transition to the low-inflation period ...
Staff Report , Paper 575

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