Central Bank Credibility and Fiscal Responsibility

By Jesse Schreger, Pierre Yared, and Emilio Zaratiegui

American Economic Review: Insights, September 2024

We consider a New Keynesian model with strategic monetary and fiscal interactions. The fiscal authority maximizes social welfare. Monetary policy is delegated to a central bank with an anti-inflation bias that suffers from a lack of commitment. The impact...

Is There a Stable Relationship between Unemployment and Future Inflation?

By Terry Fitzgerald, Callum Jones, Mariano Kulish, and Juan Pablo Nicolini

American Economic Journal: Macroeconomics, October 2024

Evaluating the stability of the Phillips curve using aggregate data is challenging due to the bias that endogenous monetary policy imparts on estimated Phillips curve coefficients. We argue that regional data can be used to identify the structural relatio...

The Optimal Quantity of CBDC in a Bank-Based Economy

By Lorenzo Burlon, Manuel A. Muñoz, and Frank Smets

American Economic Journal: Macroeconomics, October 2024

We show that the estimated effect of digital euro news on bank stock valuations and lending depends on the bank's deposit reliance and the central bank digital currency (CBDC) design features. Using a quantitative DSGE model calibrated to the euro area ec...

Whatever It Takes? The Impact of Conditional Policy Promises

By Valentin Haddad, Alan Moreira, and Tyler Muir

American Economic Review, January 2025

At the announcement of a new policy, agents form a view of state-contingent policy actions and impact. We develop a method to estimate this state-contingent perception and implement it for many asset-purchase interventions worldwide. Expectations of large...

Optimal Bank Reserve Remuneration and Capital Control Policy

By Chun-Che Chi, Stephanie Schmitt-Grohé, and Martín Uribe

American Economic Journal: Macroeconomics, January 2025

A central prediction of open economy models with a pecuniary externality due to a collateral constraint is that the unregulated economy overborrows relative to what occurs under optimal policy. A maintained assumption in this literature is that households...

A Theory of Dynamic Inflation Targets

By Christopher Clayton and Andreas Schaab

American Economic Review, February 2025

Should central banks' inflation targets remain set in stone? We study a dynamic mechanism design problem between a government and a central bank. The central bank has persistent private information about structural shocks. Firms learn the state from the c...

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...

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 ...

Public Liquidity and Financial Crises

By Wenhao Li

American Economic Journal: Macroeconomics, April 2025

This paper studies the equilibrium effect of public liquidity on financial crises. Banks borrow from households via insured deposits and partially runnable debt and suffer endogenous funding withdrawals from households in crises. Holding public liquidity ...

A Hitchhiker's Guide to Federal Reserve Participation in Fixed Income Markets

[Symposium: Bond Markets]

By Nina Boyarchenko and Or Shachar

Journal of Economic Perspectives, Spring 2025

We review US dealer-intermediated fixed income markets, including Treasuries, agency mortgage-backed securities, corporate bonds, and municipal bonds. Through the lenses of primary dealers' positions, we show these markets' evolution over the past decade ...

The Evolving Core of Usable Macroeconomics for Policymakers

By Jonas Fisher, Bart Hobijn, and Alessandro T. Villa

AEA Papers and Proceedings, May 2025

Macroeconomic models and policymakers' language have evolved significantly. Today's policy discussions center on New Keynesian (NK) synthesis, which builds on the neoclassical growth model and the AS-AD framework. It incorporates nominal and real rigiditi...

Attention, Please! Listening to the Central Bank in Uncertain Times

By Silvia Albrizio, Allan Dizioli, Pedro Simon, and Yifan Zhang

AEA Papers and Proceedings, May 2025

This paper investigates how firms' attention to central banks influences monetary policy transmission under varying macroeconomic uncertainty. The paper utilizes the earnings calls-based firm inflation expectations index and a novel attention indicator at...

Do Inflation Expectations Become More Anchored during a Disinflation Episode? Evidence for Euro Area Firms

By Ursel Baumann, Annalisa Ferrando, Dimitris Georgarakos, Yuriy Gorodnichenko, and Timo Reinelt

AEA Papers and Proceedings, May 2025

Does a successful disinflation contribute to the anchoring of inflation expectations? We provide novel survey evidence on the dynamics of euro area firms' inflation expectations during the disinflation episode since 2022. We show that firms' short-term in...

Root Causes of the Racial Wealth Gap: A Critique of the Fed View

By William A. Darity Jr. and Stephan Lefebvre

AEA Papers and Proceedings, May 2025

We address the Federal Reserve's model for Black–White wealth inequality. The Fed view has it that the Black–White wealth gap, when measured with an "expanded wealth concept," is smaller than previously thought and primarily explained by income differ...

Regional Dissent: Do Local Economic Conditions Influence FOMC Votes?

By Anton Bobrov, Rupal Kamdar, and Mauricio Ulate

American Economic Review: Insights, June 2025

US monetary policy decisions are made by the 12 voting members of the FOMC, seven of which inherently represent national-level interests. The remaining members, a rotating group of presidents from the 12 Federal Reserve districts, come instead from subnat...

How Congress Designed the Federal Reserve to Be Independent of Presidential Control

By Gary Richardson and David W. Wilcox

Journal of Economic Perspectives, Summer 2025

Conventional wisdom traces the origins of the Federal Reserve's independence to the 1951 Treasury-Fed Accord. That rendition of history is inaccurate. The principal source of the Fed's monetary-policy independence is the Banking Act of 1935, which created...

Market Segmentation and International Bond Prices: The Role of ECB Asset Purchases

By Ester Faia, Juliana Salomao, and Alexia Ventula Veghazy

American Economic Journal: Macroeconomics, October 2025

We estimate euro-dollar yields differences, hedged and unhedged, with euro area confidential corporate bond holdings data. We find that euro yields significantly decline relative to dollar yields—more for securities in the portfolios of investors that p...

Monetary Policy and the Labor Market: A Quasi-experiment in Sweden

By John Coglianese, Maria Olsson, and Christina Patterson

American Economic Review, October 2025

We analyze a monetary quasi-experiment in Sweden from 2010–2011, when the Riksbank raised the interest rate substantially. We argue that this increase was beyond what labor market conditions warranted, driven instead by new concerns about financial stab...

Sovereign Debt and Fiscal Integration in the European Union

[Symposium: Government Debt]

By Zsolt Darvas, Lennard Welslau, and Jeromin Zettelmeyer

Journal of Economic Perspectives, Fall 2025

This paper examines sovereign debt risks in the European Union, which has centralized monetary policy within the euro area, while fiscal policies remain national. Institutional reforms, including common banking supervision, the European Stability Mechanis...

The Economic Costs of Conflict: A Case Study of the Basque Country

By Alberto Abadie and Javier Gardeazabal

American Economic Review, March 2003

This article investigates the economic effects of conflict, using the terrorist conflict in the Basque Country as a case study. We find that, after the outbreak of terrorism in the late 1960's, per capita GDP in the Basque Country declined about 10 percen...