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Working Paper
Imperfect credibility and inflation persistence
In this paper, we formulate a dynamic general equilibrium model with staggered nominal contracts, in which households and firms use optimal filtering to disentangle persistent and transitory shifts in the monetary policy rule. The calibrated model accounts quite well for the dynamics of output and inflation during the Volcker disinflation, and implies a sacrifice ratio very close to the estimated value. Our approach indicates that inflation persistence and substantial costs of disinflation can be generated in an optimizing-agent framework, without relaxing the assumption of rational ...
Working Paper
Monetary policy alternatives at the zero bound: an empirical assessment
The success over the years in reducing inflation and, consequently, the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound. When that happens, a central bank can no longer stimulate aggregate demand by further interest-rate reductions and must rely on "non-standard" policy alternatives. To assess the potential effectiveness of such policies, we analyze the behavior of selected asset prices over short periods surrounding central bank statements or other types of financial or economic news ...
Journal Article
Japanese deflation loses something in the translation
Working Paper
Chronicles of a deflation unforetold
Suppose the nominal money supply could be cut literally overnight by, say, 20%. What would happen to prices, wages, output? The answer can be found in 1720s France, where just such an experiment was carried out, repeatedly. Prices adjusted instantaneously and fully on one market only, that for foreign exchange. Prices on other markets (such as commodities) as well as prices of manufactured goods and industrial wages fell slowly, over many months, and not by the full amount of the nominal reduction. Coincidentally or not, the industrial sector (as represented by manufacturing of woolen cloths) ...
Speech
Lessons at the zero bound: the Japanese and U.S. experience
Remarks at the Japan Society, New York City.
Journal Article
Deflation and economic growth
Working Paper
The optimal inflation target in an economy with limited enforcement
We formulate the central bank's problem of selecting an optimal long-run inflation rate as the choice of a distorting tax by a planner who wishes to maximize discounted utility for a heterogeneous population of infinitely-lived households in an economy with constant aggregate income. Households are divided into cash agents, who store value in currency alone, and credit agents who have access to both currency and loans. The planner's problem is equivalent to choosing inflation and nominal rates consistent with a resource constraint along with an incentive constraint that ensures credit agents ...
Newsletter
Deflation: who let the air out?
Inflation, deflation, disinflation. They affect the prices of everything we buy. To find out how and what?s happening in today?s economy, see the February 2011 newsletter, ?Deflation: Who Let the Air Out??
Conference Paper
Commetary: modeling inflation after the crisis
Journal Article
Is deflation coming?