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Working Paper
Should the Fed regularly evaluate its monetary policy framework?
Fuhrer, Jeffrey C.; Olivei, Giovanni P.; Rosengren, Eric S.; Tootell, Geoffrey M. B. (2018-10-01)
Would a more open and regular evaluation of the monetary policy framework improve policy in the United States? Even when considering a relatively short timeframe that spans the 1960s to the present, it is possible to point to many significant changes to the framework. Some of the changes were precipitated by acute economic conditions, while others were considered and implemented only gradually as a response to long-standing problems with the framework. But the process for evaluating and changing frameworks to date has not always been transparent, and changes have not always been timely. Could ...
Working Papers , Paper 18-8

Working Paper
Capital Taxation with Heterogeneous Discounting and Collateralized Borrowing
Biljanovska, Nina; Vardoulakis, Alexandros (2017-05-05)
We study optimal long-run capital taxation in a closed economy with heterogeneity in agents' time-discount factors where borrowing is allowed but restricted by a collateral constraint. Financial frictions distort intertemporal optimization margins and the tax system serves a dual role: first, it is used to finance government consumption; second, it serves to alleviate the distortions arising from the binding collateral constraint. The discrepancy between the private and the social discount factors pushes for a subsidy on capital, while the discrepancy introduced by the collateral constraint ...
Finance and Economics Discussion Series , Paper 2017-053

Report
Optimal Cooperative Taxation in the Global Economy
Chari, V. V.; Teles, Pedro; Nicolini, Juan Pablo (2019-04-18)
We use the Ramsey and Mirrlees approaches to study how fiscal and trade policy should be set cooperatively when governments must raise revenues with distorting taxes. Free trade and unrestricted capital mobility are optimal. Efficient outcomes can be implemented with taxes only on final consumption goods and labor income. We study alternative tax systems, showing that uniform taxation of household asset returns, and not taxing corporate income yields efficient outcomes. Border adjustments exempting exports from and including imports in the tax base are desirable. Destination and residence ...
Staff Report , Paper 581

Working Paper
An Analysis of the Literature on International Unconventional Monetary Policy
Bhattarai, Saroj; Neely, Christopher J. (2020-05-04)
This paper evaluates the literature on international unconventional monetary policies (UMP). Introducing market segmentation, limits-to-arbitrage, and time-consistent policy in standard models permits a theoretical role for UMP. Empirical studies provide compelling evidence that UMP influenced international asset prices and tail-risk in the desired manner. Calibrated modeling and vector autoregressive (VAR) exercises imply that these policies also improved macroeconomic outcomes. We assess the recent debate on the empirical evidence and discuss central bank assessments of UMP. Despite ...
Working Papers , Paper 2016-021

Working Paper
Commodity Prices and Labour Market Dynamics in Small Open Economies
Thoenissen, C.; Kamber, Gunes; Bodenstein, Martin (2017-04-04)
We investigate the connection between commodity price shocks and unemployment in advanced resource-rich small open economies from an empirical and theoretical perspective. Shocks to commodity prices are shown to influence labour market conditions primarily through the real exchange rate. The empirical impact of commodity price shocks is obtained from estimating a panel vector autoregression; a positive price shock is found to expand the components of GDP, to cause the real exchange rate to appreciate, and to improve labour market conditions. For every one percent increase in commodity prices, ...
Finance and Economics Discussion Series , Paper 2017-039

Working Paper
How to Starve the Beast: Fiscal Policy Rules
Martin, Fernando M. (2021-04-05)
Countries have widely imposed fiscal rules designed to constrain government spending and ensure fiscal responsibility. This paper studies the effectiveness and welfare implications of revenue, deficit and debt rules when governments are discretionary and profligate. The optimal prescription is a revenue ceiling coupled with a balance budget requirement. For the U.S., the optimal revenue ceiling is about 15% of output, 3 percentage points below the postwar average. Most of the benefits can still be reaped with a milder constraint or escape clauses during adverse times. Imposing a single fiscal ...
Working Papers , Paper 2019-026

Working Paper
Is optimal monetary policy always optimal?
Gürkaynak, Refet S.; Davig, Troy A. (2015-07-30)
No. And not only for the reason you think. In a world with multiple inefficiencies the single policy tool the central bank has control over will not undo all inefficiencies; this is well understood. We argue that the world is better characterized by multiple ine?ciencies and multiple policy makers with various objectives. Asking the policy question only in terms of optimal monetary policy effectively turns the central bank into the residual claimant of all policy and gives the other policymakers a free hand in pursuing their own goals. This further worsens the tradeoffs faced by the central ...
Research Working Paper , Paper RWP 15-5

Working Paper
More Stories of Unconventional Monetary Policy
Karson, Evan; Neely, Christopher J. (2020-10-29)
This article extends the work of Fawley and Neely (2013) to describe how major central banks have evolved unconventional monetary policies to encourage real activity and maintain stable inflation rates from 2013 through 2019. By 2013, central banks were moving from lump-sum asset purchase programs to continuing asset purchase programs, which are conditioned on economic conditions, careful communication strategies, bank lending programs with incentives and negative interest rates. This article reviews how central banks tailored their unconventional monetary methods to their various challenges ...
Working Papers , Paper 2020-043

Working Paper
Is the Rent Too High? Aggregate Implications of Local Land-Use Regulation
Bunten, Devin (2017-06)
Highly productive U.S. cities are characterized by high housing prices, low housing stock growth, and restrictive land-use regulations (e.g., San Francisco). While new residents would benefit from housing stock growth in cities with highly productive firms, existing residents justify strict local land-use regulations on the grounds of congestion and other costs of further development. This paper assesses the welfare implications of these local regulations for income, congestion, and urban sprawl within a general-equilibrium model with endogenous regulation. In the model, households choose ...
Finance and Economics Discussion Series , Paper 2017-064

Report
The advantage of flexible targeting rules
Ferrero, Andrea (2008-07-01)
This paper investigates the consequences of debt stabilization for inflation targeting. If the monetary authority perfectly stabilizes inflation while the fiscal authority holds constant the real value of debt at maturity, the equilibrium dynamics might be indeterminate. However, determinacy can be restored by committing to targeting rules for either monetary or fiscal policy that include a concern for stabilization of the output gap. In solving the indeterminacy problem, flexible inflation targeting appears to be more robust than flexible debt targeting to alternative parameter ...
Staff Reports , Paper 339

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