Corporate Finance and Monetary Policy

By Guillaume Rocheteau, Randall Wright, and Cathy Zhang

American Economic Review, April 2018

We develop a general equilibrium model where entrepreneurs finance random investment opportunities using trade credit, bank-issued assets, or currency. They search for bank funding in over-the-counter markets where loan sizes, interest rates, and down pay...

Reach for Yield and Fickle Capital Flows

By Ricardo J. Caballero and Alp Simsek

AEA Papers and Proceedings, May 2018

In Caballero and Simsek (2017), we develop a model of fickle capital flows and show that, when countries are similar, international flows create global liquidity and mitigate crises despite their fickleness. In this paper, we focus on the asymmetric situa...

The Effects of Tax Changes at the Zero Lower Bound: Evidence from Japan

By Akihisa Kato, Wataru Miyamoto, Thuy Lan Nguyen, and Dmitriy Sergeyev

AEA Papers and Proceedings, May 2018

We use the narrative approach to identify tax changes unrelated to current economic conditions and estimate the effects of these changes on macroeconomic variables during and outside of the zero lower bound period in Japan. We find little difference in th...

Unconventional Fiscal Policy

By Francesco D'Acunto, Daniel Hoang, and Michael Weber

AEA Papers and Proceedings, May 2018

Unconventional fiscal policy uses announcements of future increases in consumption taxes to generate inflation expectations and accelerate consumption expenditure. It is budget neutral and time consistent. We provide preliminary evidence for the effective...

Foreign Safe Asset Demand for US Treasurys and the Dollar

By Zhengyang Jiang, Arvind Krishnamurthy, and Hanno Lustig

AEA Papers and Proceedings, May 2018

We present theory showing that the spot dollar exchange rate reflects the value of all future convenience yields that foreign investors assign to US Treasuries. The convenience yield also creates wedge, the Treasury-based dollar basis, between the yield o...

Central Bank Forward Guidance and the Signal Value of Market Prices

By Stephen Morris and Hyun Song Shin

AEA Papers and Proceedings, May 2018

Central banks use forward guidance to steer market expectations of future monetary policy moves. At the same time, they rely on market prices to gauge the likely path of the economy and the appropriate stance of monetary policy. This two-way flow between ...

Central Bank Communications and the General Public

By Andrew Haldane and Michael McMahon

AEA Papers and Proceedings, May 2018

Despite the recent revolution in central bank communication, it is unclear the general public have benefitted from these enhanced central bank communications. We first analyze the growth of communication and some reasons that the public may have missed th...

Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan

By Wataru Miyamoto, Thuy Lan Nguyen, and Dmitriy Sergeyev

American Economic Journal: Macroeconomics, July 2018

Using a rich dataset on government spending forecasts in Japan, we provide new evidence on the effects of unexpected changes in government spending when the nominal interest rate is near the zero lower bound (ZLB). The on-impact output multiplier is 1.5 i...

Fiscal Rules and Discretion in a World Economy

By Marina Halac and Pierre Yared

American Economic Review, August 2018

Governments are present-biased toward spending. Fiscal rules are deficit limits that trade off commitment to not overspend and flexibility to react to shocks. We compare coordinated rules, chosen jointly by a group of countries, to uncoordinated rules. If...

Identification in Macroeconomics

[Symposium: Macroeconomics a Decade after the Great Recession]

By Emi Nakamura and Jón Steinsson

Journal of Economic Perspectives, Summer 2018

This paper discusses empirical approaches macroeconomists use to answer questions like: What does monetary policy do? How large are the effects of fiscal stimulus? What caused the Great Recession? Why do some countries grow faster than others? Identificat...

International Reserves and Rollover Risk

By Javier Bianchi, Juan Carlos Hatchondo, and Leonardo Martinez

American Economic Review, September 2018

We study the optimal accumulation of international reserves in a quantitative model of sovereign default with long-term debt and a risk-free asset. Keeping higher levels of reserves provides a hedge against rollover risk, but this is costly because using ...

Low Real Interest Rates, Collateral Misrepresentation, and Monetary Policy

By Stephen D. Williamson

American Economic Journal: Macroeconomics, October 2018

A model is constructed in which households and banks have incentives to fake the quality of collateral. These incentive problems matter when collateral is scarce in the aggregate—when real interest rates are low. Conventional monetary easing can exacerb...

Unconventional Monetary Policies in the Euro Area, Japan, and the United Kingdom

[Symposium: Unconventional Monetary Policy]

By Giovanni Dell'Ariccia, Pau Rabanal, and Damiano Sandri

Journal of Economic Perspectives, Fall 2018

The global financial crisis hit hard in the euro area, the United Kingdom, and Japan. Real GDP from peak to trough contracted by about 6 percent in the euro area and the United Kingdom and by 9 percent in Japan. In all three cases, central banks cut int...

The Case for Imposing Cashlessness: A Review Article

By Neil Wallace

Journal of Economic Literature, December 2018

In The Curse of Cash, Rogoff (2016) makes two arguments. (i) Large denominations of currency are primarily used for illegal activity. Therefore, eliminating them would have benefits that far outweigh the costs in terms of lost seigniorage. (ii)...

Are Low Interest Rates Deflationary? A Paradox of Perfect-Foresight Analysis

By Mariana García-Schmidt and Michael Woodford

American Economic Review, January 2019

We argue that an influential "neo-Fisherian" analysis of the effects of low interest rates depends on using perfect foresight equilibrium analysis under circumstances where it is not plausible for people to hold expectations of that kind. We propose an ex...

A Model of Secular Stagnation: Theory and Quantitative Evaluation

By Gauti B. Eggertsson, Neil R. Mehrotra, and Jacob A. Robbins

American Economic Journal: Macroeconomics, January 2019

This paper formalizes and quantifies the secular stagnation hypothesis, defined as a persistently low or negative natural rate of interest leading to a chronically binding zero lower bound (ZLB). Output-inflation dynamics and policy prescriptions are fund...

Fiscal Austerity in Ambiguous Times

By Axelle Ferriere and Anastasios G. Karantounias

American Economic Journal: Macroeconomics, January 2019

This paper analyzes optimal fiscal policy with ambiguity aversion and endogenous government spending. We show that, without ambiguity, optimal surplus-to-output ratios are acyclical and that there is no rationale for either reduction or further accumulati...

Demographic Structure and Macroeconomic Trends

By Yunus Aksoy, Henrique S. Basso, Ron P. Smith, and Tobias Grasl

American Economic Journal: Macroeconomics, January 2019

We estimate the effect of changes in demographic structure on long-term trends of key macroeconomic variables using a Panel VAR for 21 OECD economies from 1970–2014. The panel data variation assists the identification of demographic effects, while t...

Liquidity Constraint Tightness and Consumer Responses to Fiscal Stimulus Policy

By Claus Thustrup Kreiner, David Dreyer Lassen, and Søren Leth-Petersen

American Economic Journal: Economic Policy, February 2019

The marginal interest rate is the price at which a household can access additional liquidity. Consumption theory posits that variation in marginal interest rates across consumers predicts differences in the propensity to spend a stimulus payment. This hyp...

The Quanto Theory of Exchange Rates

By Lukas Kremens and Ian Martin

American Economic Review, March 2019

We present a new identity that relates expected exchange rate appreciation to a risk-neutral covariance term, and use it to motivate a currency forecasting variable based on the prices of quanto index contracts. We show via panel regressions that the quan...