Interest Rates and the Spatial Polarization of Housing Markets

By Francisco Amaral, Martin Dohmen, Sebastian Kohl, and Moritz Schularick

American Economic Review: Insights, March 2024

Rising within-country differences in house values are a much-debated trend in the United States and internationally. Using new long-run regional data for 15 advanced economies, we show that standard explanations linking growing price dispersion to rent di...

Ambiguity Aversion and Heterogeneity in Households' Beliefs

By Claudio Michelacci and Luigi Paciello

American Economic Journal: Macroeconomics, April 2024

UK households that wish for lower inflation and lower nominal interest rates have higher expected inflation. We interpret the evidence through the lens of a New Keynesian model where ambiguity-averse households differ in wealth, skill, labor market partic...

Testing the Effectiveness of Unconventional Monetary Policy in Japan and the United States

By Daisuke Ikeda, Shangshang Li, Sophocles Mavroeidis, and Francesco Zanetti

American Economic Journal: Macroeconomics, April 2024

Unconventional monetary policy (UMP) may make the effective lower bound (ELB) on the short-term interest rate irrelevant. We develop a theoretical model that underpins our empirical test of this "irrelevance hypothesis," based on the simple idea that unde...

Exorbitant Privilege and the Sustainability of US Public Debt

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

AEA Papers and Proceedings, May 2024

We study the extent to which the perceived cost of losing the exorbitant privilege the United States holds in global safe asset markets sustains its public debt safety. Our findings indicate that losing this special status in the event of a default signif...

The Flight to Safety and International Risk Sharing

By Rohan Kekre and Moritz Lenel

American Economic Review, June 2024

We study a business cycle model of the international monetary system featuring a time varying demand for safe dollar bonds, greater risk-bearing capacity in the United States than the rest of the world, and nominal rigidities. A flight to safety generates...

Optimal Foreign Reserves and Central Bank Policy under Financial Stress

By Luis Felipe Céspedes and Roberto Chang

American Economic Journal: Macroeconomics, July 2024

We study foreign reserves accumulation and liquidity policy in an open economy under financial stress. Firms and households finance investment and consumption by borrowing from banks, which borrow from abroad. Binding financial constraints cause the domes...

Delayed Overshooting: The Case for Information Rigidities

By Gernot J. Müller, Martin Wolf, and Thomas Hettig

American Economic Journal: Macroeconomics, July 2024

We provide evidence that the delayed overshooting puzzle reflects a slow adjustment of exchange rate expectations to monetary policy shocks rather than a failure of uncovered interest parity. Consistent with this evidence, we put forward a New Keynesian m...

Understanding Persistent ZLB: Theory and Assessment

By Pablo Cuba-Borda and Sanjay R. Singh

American Economic Journal: Macroeconomics, July 2024

We develop a theoretical framework that rationalizes two hypotheses of long-lasting low-interest rate episodes: deflationary-expectations-traps and secular stagnation in a unified setting. These hypotheses differ in the sign of the theoretical correlation...

Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity

By Gareth Anderson and Ambrogio Cesa-Bianchi

American Economic Journal: Macroeconomics, July 2024

Firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage in response to a monetary policy tightening. A large fraction of this increase is due to a component of credit spreads that is in excess of firms...

Long-Run Trends in Long-Maturity Real Rates, 1311–2022

By Kenneth S. Rogoff, Barbara Rossi, and Paul Schmelzing

American Economic Review, August 2024

Taking advantage of key recent advances in long-run economic and financial data, we analyze the statistical properties of global long-maturity real interest rates over the past seven centuries. In contrast to existing consensus, we find that real interest...

Fiscal and Monetary Policy Interactions in a Model with Low Interest Rates

By Jianjun Miao and Dongling Su

American Economic Journal: Macroeconomics, October 2024

We provide a new Keynesian model where entrepreneurs face uninsurable idiosyncratic investment risk and credit constraints. Government bonds provide liquidity services. Multiple steady states with positive values of public debt can be supported for a give...

When Interest Rates Go Low, Should Public Debt Go High?

By Johannes Brumm, Xiangyu Feng, Laurence Kotlikoff, and Felix Kubler

American Economic Journal: Macroeconomics, October 2024

Is deficit finance free when real borrowing rates are routinely lower than growth rates? Specifically, can the government make all generations better off by perpetually taking from the young and giving to the old? We study this in stochastic closed- and o...

Micro Risks and (Robust) Pareto-Improving Policies

By Mark Aguiar, Manuel Amador, and Cristina Arellano

American Economic Review, November 2024

We provide conditions for the feasibility of robust Pareto-improving (RPI) policies when markets are incomplete and the interest rate is below the growth rate. We allow for arbitrary heterogeneity in preferences and income risk and a wedge between the ret...

US Treasury Auctions: A High-Frequency Identification of Supply Shocks

By Maxime Phillot

American Economic Journal: Macroeconomics, January 2025

We identify Treasury supply shocks using auction data, interpreting changes in futures prices around announcements as shocks to expected supply. We isolate the component of futures price variations pertaining to US Treasury announcements between 1998 and ...

Wealth Inequality, Aggregate Consumption, and Macroeconomic Trends under Incomplete Markets

By Byoungchan Lee

American Economic Journal: Macroeconomics, January 2025

I construct an incomplete market model featuring a closed-form expression for optimal consumption. In the model, individual consumption is an isoelastic function of wealth, inclusive of income, yielding partial consumption smoothing based on borrowing and...

Did the Elimination of Mandatory Retirement Affect Faculty Retirement?

By Orley Ashenfelter and David Card

American Economic Review, September 2002

A special exemption from the 1986 Age Discrimination Act allowed colleges and universities to enforce mandatory retirement of faculty at age 70 until 1994. We construct a survey that permits us to compare faculty turnover rates before and after the law ch...

The High-Frequency Effects of Dollar Swap Lines

By Rohan Kekre and Moritz Lenel

American Economic Review: Insights, March 2025

We study the effects of dollar swap lines using high-frequency responses in asset prices around policy announcements. News about expanded dollar swap lines causes a reduction in liquidity premia, compression of deviations from covered interest parity, and...

Dynamic Inconsistencies: Counterfactual Implications of a Class of Rational-Expectations Models

By Arturo Estrella and Jeffrey C. Fuhrer

American Economic Review, September 2002

Terror as a Bargaining Instrument: A Case Study of Dowry Violence in Rural India

By Francis Bloch and Vijayendra Rao

American Economic Review, September 2002

Mortgage Pricing and Monetary Policy

By Matteo Benetton, Alessandro Gavazza, and Paolo Surico

American Economic Review, March 2025

This paper examines how central bank policies influence mortgage pricing in the United Kingdom. It shows that lenders price discriminate by offering two-part tariffs of interest rates and origination fees, and during unconventional monetary policies like ...