Targeting Long Rates in a Model with Segmented Markets

By Charles T. Carlstrom, Timothy S. Fuerst, and Matthias Paustian

American Economic Journal: Macroeconomics, January 2017

This paper develops a model of segmented financial markets in which the net worth of financial institutions limits the degree of arbitrage across the term structure. The model is embedded into the canonical Dynamic New Keynesian (DNK) framework. We estima...

The Great Escape? A Quantitative Evaluation of the Fed's Liquidity Facilities

By Marco Del Negro, Gauti Eggertsson, Andrea Ferrero, and Nobuhiro Kiyotaki

American Economic Review, March 2017

We introduce liquidity frictions into an otherwise standard DSGE model with nominal and real rigidities and ask: can a shock to the liquidity of private paper lead to a collapse in short-term nominal interest rates and a recession like the one associated ...

Euro-Area Quantitative Easing and Portfolio Rebalancing

By Ralph S. J. Koijen, François Koulischer, Benoît Nguyen, and Motohiro Yogo

American Economic Review, May 2017

We use new and comprehensive data on the security holdings of euro-area investors to document facts about the ongoing quantitative easing program. The holdings of purchase-eligible government bonds have strong home bias not only for banks but also for ins...

The Decentralized Central Bank: A Review Essay on The Power and Independence of the Federal Reserve by Peter Conti-Brown

By Narayana R. Kocherlakota

Journal of Economic Literature, June 2017

This essay discusses the structure and governance of the Federal Reserve System in light of the many changes in its activities over the past thirty years. Based on this analysis, it argues in favor of four specific reforms: clarification of Congressional ...

Uncertainty at the Zero Lower Bound

By Taisuke Nakata

American Economic Journal: Macroeconomics, July 2017

When the policy rate is at the zero lower bound (ZLB), an increase in uncertainty regarding the future path of exogenous shocks alters the conditional expectations of relevant prices facing households and firms. Accordingly, an increase in uncertainty alt...

Inspecting the Mechanism: Leverage and the Great Recession in the Eurozone

By Philippe Martin and Thomas Philippon

American Economic Review, July 2017

We provide a comprehensive account of the dynamics of eurozone countries from 2000 to 2012. We analyze private leverage, fiscal policy, labor costs, and spreads, and we propose a model and an identification strategy to separate the impact of credit cycles...

Dealing with Monetary Paralysis at the Zero Bound

[Symposium: The Global Monetary System]

By Kenneth Rogoff

Journal of Economic Perspectives, Summer 2017

Recently, the key constraint for central banks is the zero lower bound on nominal interest rates. Central banks fear that if they push short-term policy interest rates too deeply negative, there will be a massive flight into paper currency. This paper...

The Science of Monetary Policy: An Imperfect Knowledge Perspective

By Stefano Eusepi and Bruce Preston

Journal of Economic Literature, March 2018

This paper reevaluates the basic prescriptions of monetary policy design in the new Keynesian paradigm through the lens of imperfect knowledge. We show that while the basic logic of monetary policy design under rational expectations continues to obtain, p...

Trade Invoicing, Bank Funding, and Central Bank Reserve Holdings

By Gita Gopinath and Jeremy C. Stein

AEA Papers and Proceedings, May 2018

We develop a model that shows how the currency denomination of a country's imports influences the funding structure of its banking system, and in turn, the currency composition of its central bank's reserve holdings. The link between the dollar's role in ...

Through a Crystal Ball Darkly: The Future of Monetary Policy Communication

By Alan S. Blinder

AEA Papers and Proceedings, May 2018

I make six predictions about the future of central bank communication about monetary policy. Some are made with great confidence, like: transparency will increase over time. Others are far riskier, like: attempts to communicate with the general public, th...

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...

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...

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...

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)...

When Is Foreign Exchange Intervention Effective? Evidence from 33 Countries

By Marcel Fratzscher, Oliver Gloede, Lukas Menkhoff, Lucio Sarno, and Tobias Stöhr

American Economic Journal: Macroeconomics, January 2019

This paper examines foreign exchange intervention based on novel daily data covering 33 countries from 1995 to 2011. We find that intervention is widely used and an effective policy tool, with a success rate in excess of 80 percent under some criteria. Th...

Monetary Policy, Real Activity, and Credit Spreads: Evidence from Bayesian Proxy SVARs

By Dario Caldara and Edward Herbst

American Economic Journal: Macroeconomics, January 2019

In this paper we develop a Bayesian framework to estimate a proxy structural vector autoregression to identify monetary policy shocks. We find that during the Great Moderation period, monetary policy shocks induce a persistent decline in real activity and...

Would Macroprudential Regulation Have Prevented the Last Crisis?

[Symposium: Financial Stability Regulation]

By David Aikman, Jonathan Bridges, Anil Kashyap, and Caspar Siegert

Journal of Economic Perspectives, Winter 2019

How well equipped are today's macroprudential regimes to deal with a rerun of the factors that led to the global financial crisis? To address the factors that made the last crisis so severe, a macroprudential regulator would need to implement policies t...

Currency Substitution under Transaction Costs

By Linda M. Schilling and Harald Uhlig

AEA Papers and Proceedings, May 2019

We consider a setting where agents can choose between two currencies to conduct their goods purchases. The usage of either currency comes with currency-specific transactions costs. For example, purchasing some goods with cryptocurrencies rather than dolla...

Monetary Policy Strategies for a Low-Rate Environment

By Ben S. Bernanke, Michael T. Kiley, and John M. Roberts

AEA Papers and Proceedings, May 2019

In low-rate environments, policy strategies that involve holding rates "lower for longer" (L4L) may mitigate the effects of the effective lower bound (ELB). However, these strategies work in part by managing the public's expectations, which is not always ...