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Working Paper
Impulse Response Analysis for Structural Dynamic Models with Nonlinear Regressors
We study the construction of nonlinear impulse responses in structural dynamic models that include nonlinearly transformed regressors. Such models have played an important role in recent years in capturing asymmetries, thresholds and other nonlinearities in the responses of macroeconomic variables to exogenous shocks. The conventional approach to estimating nonlinear responses is by Monte Carlo integration. We show that the population impulse responses in this class of models may instead be derived analytically from the structural model. We use this insight to study under what conditions ...
Discussion Paper
Financial Stability and Interest Rates
In a recent research paper we argue that interest rates have very different consequences for current versus future financial stability. In the short run, lower real rates mean higher asset prices and hence higher net worth for financial institutions. In the long run, lower real rates lead intermediaries to shift their portfolios toward risky assets, making them more vulnerable over time. In this post, we use a model to highlight the challenging trade-offs faced by policymakers in setting interest rates.