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Journal Article
Financial market efficiency and the effectiveness of monetary policy
Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary Transmission
Working Paper
The optimum quantity of money revisited
This paper uses a simple general equilibrium model in which agents use money holdings to self insure to address the classic question: What is the optimal rate of change of the money supply? The standard answer to this question, provided by Friedman, Bewley, Townsend, and others, is that this rate is negative. Because any revenues from seignorage in our model are redistributed in lump-sum form to agents and this redistribution improves insurance possibilities, we find that the optimal rate is sometimes positive. We also discuss the measurement of welfare gains or losses from inflation and ...
Report
Credit spreads and monetary policy
We consider the desirability of modifying a standard Taylor rule for a central bank's interest rate policy to incorporate either an adjustment for changes in interest rate spreads (as proposed by Taylor [2008] and McCulley and Toloui [2008]) or a response to variations in the aggregate volume of credit (as proposed by Christiano et al. [2007]). We then examine how, under those adjustments, policy would respond to various types of economic disturbances, including those originating in the financial sector that increase equilibrium spreads and contract the supply of credit. We conduct our ...
Journal Article
Inflation targeting and optimal monetary policy
Report
Conventional and unconventional monetary policy
We extend a standard New Keynesian model both to incorporate heterogeneity in spending opportunities along with two sources of (potentially time-varying) credit spreads and to allow a role for the central bank's balance sheet in determining equilibrium. We use the model to investigate the implications of imperfect financial intermediation for familiar monetary policy prescriptions and to consider additional dimensions of central bank policy--variations in the size and composition of the central bank's balance sheet as well as payment of interest on reserves--alongside the traditional question ...
Conference Paper
Methods of policy accommodation at the interest-rate lower bound
Conference Paper
Optimal monetary and fiscal policy: a linear-quadratic approach
Working Paper
Optimal monetary and fiscal policy: a linear-quadratic approach
We propose an integrated treatment of the problems of optimal monetary and fiscal policy, for an economy in which prices are sticky (so that the supply-side effects of tax changes are more complex than in standard fiscal analyses) and the only available sources of government revenue are distorting taxes (so that the fiscal consequences of monetary policy must be considered alongside the usual stabilization objectives). Our linear-quadratic approach allows us to nest both conventional analyses of optimal monetary stabilization policy and analyses of optimal tax-smoothing as special cases of ...