The New Tools of Monetary Policy

By Ben S. Bernanke

American Economic Review, April 2020

To overcome the limits on traditional monetary policy imposed by the effective lower bound on short-term interest rates, in recent years the Federal Reserve and other advanced-economy central banks have deployed new policy tools. This lecture reviews wh...

Interest Rates under Falling Stars

By Michael D. Bauer and Glenn D. Rudebusch

American Economic Review, May 2020

Macro-finance theory implies that trend inflation and the equilibrium real interest rate are fundamental determinants of the yield curve. However, empirical models of the term structure of interest rates generally assume that these fundamentals are consta...

Public Debt, Interest Rates, and Negative Shocks

By Richard W. Evans

AEA Papers and Proceedings, May 2020

Debt-to-GDP ratios across developed economies are at historically high levels, and government borrowing rates remain persistently low. Blanchard (2019) provides evidence that the fiscal costs and welfare costs are low of increased government debt in low i...

Are Large Deficits and Debt Dangerous?

By Michael J. Boskin

AEA Papers and Proceedings, May 2020

The traditional view of large deficits and debt is that they are harmful, save in recession/early recovery, for tax smoothing or to fund productive public investment, as they crowd out private investment and lower future income, and taken to extremes, can...

Simulating the Blanchard Conjecture in a Multiperiod Life Cycle Model

By Jasmina Hasanhodzic

AEA Papers and Proceedings, May 2020

In recent writings, Olivier Blanchard has suggested that when the safe rate on government debt is less that the economy's growth rate, additional deficit-financed US federal spending would come at no cost to any future generation and benefits to some. Thi...

Leveraging Posterity's Prosperity?

By Johannes Brumm, Laurence Kotlikoff, and Felix Kubler

AEA Papers and Proceedings, May 2020

We critically review studies by Blanchard (B) and Rachel and Summers (RS). By the standard fiscal-gap measure, the US government is in dire fiscal shape thanks to constantly enlarging its postwar, take-as-you-go Ponzi scheme. Yet B and RS seemingly ration...

Comments

By Robert S. Goldfarb, H. O. Stekler, David Neumark, William Wascher, and T. D. Stanley

Journal of Economic Perspectives, Summer 2002

NKV: A New Keynesian Model with Vulnerability

By Tobias Adrian, Fernando Duarte, Nellie Liang, and Pawel Zabczyk

AEA Papers and Proceedings, May 2020

We present a New Keynesian model with endogenous risk. The conditional output gap volatility depends on the price of risk, giving rise to a vulnerability channel of monetary policy. Lower interest rates not only shift consumption intertemporally but also ...

Private Supply of Safe Assets: Shadow Banks versus Traditional Banks

By Stefan Gissler, Marco Macchiavelli, and Borghan Narajabad

AEA Papers and Proceedings, May 2020

We show that the creation of private safe assets by shadow banks can decrease traditional banks' supply of safe assets. The 2014–2016 money fund reform created a large demand shock for safe assets, to which Federal Home Loan Banks (FHLBs) responded, exp...

The Global Financial Cycle after Lehman

By Silvia Miranda-Agrippino and Hélène Rey

AEA Papers and Proceedings, May 2020

Did the effect of US monetary policy on the global financial cycle change after the crisis? We analyze the international transmission of the Fed's policy shocks since 2009. We find similar effects for the policies that act mostly on the short end of the U...

Impact of Foreign Official Purchases of US Treasuries on the Yield Curve

By Erin L. Wolcott

AEA Papers and Proceedings, May 2020

Foreign governments went from owning a tenth of publicly available US Treasury notes and bonds in 1985 to over half in 2008. Recently, foreign governments have reduced their positions. I find foreign official purchases have depressed medium-term yields, d...

Ambiguity, Nominal Bond Yields, and Real Bond Yields

By Guihai Zhao

American Economic Review: Insights, June 2020

This paper presents an equilibrium bond-pricing model that jointly explains the upward-sloping nominal and real yield curves and the violation of the expectations hypothesis. Instead of relying on the inflation risk premium, the ambiguity-averse agent fac...

Risk Premia and the Real Effects of Money

By Sebastian Di Tella

American Economic Review, July 2020

This paper proposes a flexible-price theory of the role of money in an economy with incomplete idiosyncratic risk sharing. When the risk premium goes up, money provides a safe store of value that prevents interest rates from falling, reducing investment. ...

A Behavioral New Keynesian Model

By Xavier Gabaix

American Economic Review, August 2020

This paper analyzes how bounded rationality affects monetary and fiscal policy via an empirically relevant enrichment of the New Keynesian model. It models agents' partial myopia toward distant atypical events using a new microfounded "cognitive discounti...

SVAR (Mis)identification and the Real Effects of Monetary Policy Shocks

By Christian K. Wolf

American Economic Journal: Macroeconomics, October 2020

I argue that the seemingly disparate findings of the recent empirical literature on monetary policy transmission are all consistent with the same standard macro models. Weak sign restrictions, which suggest that contractionary monetary policy, if anything...

The Rise of Services and Balanced Growth in Theory and Data

By Miguel León-Ledesma and Alessio Moro

American Economic Journal: Macroeconomics, October 2020

We investigate the effect of structural transformation on the process of economic growth. Using a two-sector growth model we show that, in addition to Baumol's cost disease, structural transformation from goods to services generates other predictions that...

Quantitative Easing, Collateral Constraints, and Financial Spillovers

By John Geanakoplos and Haobin Wang

American Economic Journal: Macroeconomics, October 2020

The steady application of quantitative easing (QE) has been followed by big and nonmonotonic effects on international asset prices and capital flows. We rationalize these observations in a model in which a central bank buys domestic assets that serve as t...

Missing Events in Event Studies: Identifying the Effects of Partially Measured News Surprises

By Refet S. Gürkaynak, Burçin Kisacikoğlu, and Jonathan H. Wright

American Economic Review, December 2020

Macroeconomic news announcements are elaborate and multi-dimensional. We consider a framework in which jumps in asset prices around announcements reflect both the response to observed surprises in headline numbers and to latent factors, reflecting other n...

Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others

By Lars E.O. Svensson

Journal of Economic Perspectives, Fall 2003

Existing proposals to escape from a liquidity trap and deflation, including my "Foolproof Way," are discussed in the light of the optimal way to escape. The optimal way involves three elements: (1) an explicit central-bank commitment to a higher future pr...

Going Negative at the Zero Lower Bound: The Effects of Negative Nominal Interest Rates

By Mauricio Ulate

American Economic Review, January 2021

After the Great Recession several central banks started setting negative nominal interest rates in an expansionary attempt, but the effectiveness of this measure remains unclear. Negative rates can stimulate the economy by lowering the rates that commerci...