The Government Spending Multiplier in a Multisector Economy

By Hafedh Bouakez, Omar Rachedi, and Emiliano Santoro

American Economic Journal: Macroeconomics, January 2023

We study the effects of aggregate government spending shocks in a production network economy where sectors differ in their price rigidity, factor intensities, use of intermediate inputs, and contribution to final demand. The model implies an aggregate val...

Consumption Heterogeneity: Micro Drivers and Macro Implications

By Edmund Crawley and Andreas Kuchler

American Economic Journal: Macroeconomics, January 2023

We document heterogeneity in the marginal propensity to consume (MPC) across household characteristics relevant to understanding heterogeneous agent models and monetary policy transmission. We find a strong negative relationship between household liquid w...

Monetary Policy When the Central Bank Shapes Financial-Market Sentiment

[Symposium: Monetary Policy]

By Anil K Kashyap and Jeremy C. Stein

Journal of Economic Perspectives, Winter 2023

Recent research has found that monetary policy works in part by influencing the risk premiums on both traded financial-market securities and intermediated loans. Research has also shown that when risk premiums are compressed, there is an increased likelih...

Landings, Soft and Hard: The Federal Reserve, 1965–2022

[Symposium: Monetary Policy]

By Alan S. Blinder

Journal of Economic Perspectives, Winter 2023

"Soft landings," that is, cases in which the central bank tightens monetary policy to fight inflation but does not cause a recession (which would be a "hard landing"), are thought to be difficult to achieve and extremely rare. According to the conventiona...

Monetary Policy and Inequality

[Symposium: Monetary Policy]

By Alisdair McKay and Christian K. Wolf

Journal of Economic Perspectives, Winter 2023

We ask three questions about the connection between monetary policy and inequality. First, does monetary policy affect inequality? While different households respond to changes in monetary policy for different reasons, we argue that the overall consumpt...

An Alternative Explanation for the "Fed Information Effect"

By Michael D. Bauer and Eric T. Swanson

American Economic Review, March 2023

Regressions of private-sector macroeconomic forecast revisions on monetary policy surprises often produce coefficients with signs opposite to standard macroeconomic models. The "Fed information effect" argues these puzzling results are due to monetary pol...

Measuring Monetary Policy in the Euro Area Using SVARs with Residual Restrictions

By Harald Badinger and Stefan Schiman

American Economic Journal: Macroeconomics, April 2023

This study measures the effects of monetary policy in the euro area using a small number of sign and magnitude restrictions on the residuals of a structural vector autoregression. We derive the dates and directions of these shocks from high-frequency fina...

Interest Rates and World Trade: An "Austrian" Perspective

By Pol Antràs

AEA Papers and Proceedings, May 2023

I develop a framework to study the interplay between world trade and interest rates. The model incorporates an explicit notion of time and production length, in the "Austrian" tradition of Bohm-Bawerk (1889). Changes in the interest rate affect production...

Market Power, Financial Constraints, and Monetary Transmission

By Romain Duval, Davide Furceri, Raphael Lee, and Marina M. Tavares

AEA Papers and Proceedings, May 2023

There is growing evidence that corporate market power is increasing and affecting monetary policy transmission. This paper develops a partial equilibrium model that highlights the role of financial constraints in shaping the role of markups for the respon...

Monetary Policy, Market Power, and SMEs

By Annalisa Ferrando, Peter McAdam, Filippos Petroulakis, and Xavier Vives

AEA Papers and Proceedings, May 2023

Monetary policy aims to affect corporate borrowing by influencing the marginal costs of firms, but its potency can be conditioned by the degree of market competition. We first identify conditions under which changes in marginal costs have different effect...

The Secular Decrease in UK Safe Asset Market Power

By Jason Choi, Duong Dang, Rishabh Kirpalani, and Diego J. Perez

AEA Papers and Proceedings, May 2023

We document the decline in market power of the United Kingdom in safe assets and quantify the resulting losses. We estimate an increasing elasticity of demand for UK public debt during the latter half of the twentieth century. This is in sharp contrast to...

Fiscal Stimulus and the Systematic Response of Monetary Policy

By Christian K. Wolf

AEA Papers and Proceedings, May 2023

Economic theory suggests that the effects of fiscal stimulus can vary substantially with the systematic response of monetary policy. Empirical estimates of the causal effects of fiscal shocks implicitly embed a particular monetary reaction: they provide t...

The Importance of Fed Chair Speeches as a Monetary Policy Tool

By Eric T. Swanson

AEA Papers and Proceedings, May 2023

I estimate the effects of Federal Open Market Committee (FOMC) announcements, post-FOMC press conferences, and speeches and Congressional testimony by the Fed chair on stock prices, Treasury yields, and interest rate futures from 1988 to 2019. I show that...

Reputation and Partial Default

By Manuel Amador and Christopher Phelan

American Economic Review: Insights, June 2023

This paper presents a continuous-time reputation model of sovereign debt allowing for both varying levels of partial default and full default. In it, a government can be a nonstrategic commitment type or a strategic opportunistic type, and a government's ...

A Note on Temporary Supply Shocks with Aggregate Demand Inertia

By Ricardo J. Caballero and Alp Simsek

American Economic Review: Insights, June 2023

We study optimal monetary policy during temporary supply contractions when aggregate demand has inertia and the central bank is concerned about future constraints on expansionary policy. In this environment, it is optimal to run the economy hot until supp...

The Reversal Interest Rate

By Joseph Abadi, Markus Brunnermeier, and Yann Koby

American Economic Review, August 2023

The reversal interest rate is the rate at which accommodative monetary policy reverses and becomes contractionary for lending. We theoretically demonstrate its existence in a macroeconomic model featuring imperfectly competitive banks that face financial ...

A Sufficient Statistics Approach for Macro Policy

By Régis Barnichon and Geert Mesters

American Economic Review, November 2023

The evaluation of macroeconomic policy decisions has traditionally relied on the formulation of a specific economic model. In this work, we show that two statistics are sufficient to detect, often even correct, nonoptimal policies, i.e., policies that do ...

The Ends of 27 Big Depressions

By Martin Ellison, Sang Seok Lee, and Kevin Hjortshøj O'Rourke

American Economic Review, January 2024

How did countries recover from the Great Depression? In this paper, we explore the argument that leaving the gold standard helped by boosting inflationary expectations, lowering real interest rates, and stimulating interest-sensitive expenditures. We do s...

Monetary Policy When the Phillips Curve Is Quite Flat

By Paul Beaudry, Chenyu Hou, and Franck Portier

American Economic Journal: Macroeconomics, January 2024

This paper highlights how the presence of a monetary policy cost channel can offer new insights into the relation between monetary policy and inflation when the Phillips curve is quite flat. For instance, we highlight a key condition whereby lax monetary ...

Assessing the Stabilizing Effects of Unemployment Benefit Extensions

By Alexey Gorn and Antonella Trigari

American Economic Journal: Macroeconomics, January 2024

We study the stabilizing role of benefit extensions. We develop a tractable quantitative model with heterogeneous agents, search frictions, and nominal rigidities. The model allows for a stabilizing aggregate demand channel and a destabilizing labor marke...