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Working Paper
Employment Effects of Unconventional Monetary Policy : Evidence from QE
Zimmermann, Thomas; Luck, Stephan (2018-10-24)
This paper investigates the effect of the Federal Reserve's unconventional monetary policy on employment via a bank lending channel. We find that banks with higher mortgage-backed securities holdings issued relatively more loans after the first and third rounds of quantitative easing (QE1 and QE3). While additional volume is concentrated in refinanced mortgages after QE1, increases are driven by newly originated home purchase mortgages and additional commercial and industrial lending after QE3. Using spatial variation, we show that regions with a high share of affected banks experienced ...
Finance and Economics Discussion Series , Paper 2018-071

Report
Fiat Value in the Theory of Value
Wessel, Ryan; Prescott, Edward C. (2016-06-22)
We explore monetary policy in a world without currency. In our world, money is a form of government debt that bears interest, which can be negative as well as positive. Services of money are a factor of production. We show that the national accounts must be revised in this world. Using our baseline economy, we determine the balanced growth paths for a set of money interest rate target policy regimes. Besides this interest rate, the only policy variable that differs across regimes is either the labor income tax rate or the inflation rate. We find that Friedman monetary satiation without ...
Staff Report , Paper 530

Working Paper
Dynamic Factor Models, Cointegration, and Error Correction Mechanisms
Barigozzi, Matteo; Luciani, Matteo; Lippi, Marco (2016-02-16)
The paper studies Non-Stationary Dynamic Factor Models such that: (1) the factors Ft are I(1) and singular, i.e. Ft has dimension r and is driven by a q-dimensional white noise, the common shocks, with q < r, and (2) the idiosyncratic components are I(1). We show that Ft is driven by r-c permanent shocks, where c is the cointegration rank of Ft, and q - (r - c) < c transitory shocks, thus the same result as in the non-singular case for the permanent shocks but not for the transitory shocks. Our main result is obtained by combining the classic Granger Representation Theorem with recent ...
Finance and Economics Discussion Series , Paper 2016-018

Newsletter
Some inflation scenarios for the American Rescue Plan Act of 2021
Fisher, Jonas D. M.; Melosi, Leonardo; Bianchi, Francesco (2021-04-13)
The American Rescue Plan Act (ARP) signed into law on March 11, 2021, authorized approximately $1.9 trillion in federal government spending. ARP is widely expected to boost economic growth over the next two to three years—and significantly so early on. The upswing in growth is likely to increase resource pressures and therefore consumer price inflation as well. The potential for this channel to raise inflation substantially has attracted the attention of economic commentators, including Olivier Blanchard and Lawrence Summers. But the magnitudes and persistence of the possible increases in ...
Chicago Fed Letter , Issue 453 , Pages 8

Working Paper
Variation in the Phillips Curve Relation across Three Phases of the Business Cycle
Verbrugge, Randal; Ashley, Richard (2019-05-03)
We use recently developed econometric tools to demonstrate that the Phillips curve unemployment rate?inflation rate relationship varies in an economically meaningful way across three phases of the business cycle. The first (?bust phase?) relationship is the one highlighted by Stock and Watson (2010): A sharp reduction in inflation occurs as the unemployment rate is rising rapidly. The second (?recovery phase?) relationship occurs as the unemployment rate subsequently begins to fall; during this phase, inflation is unrelated to any conventional unemployment gap. The final (?overheating phase?) ...
Working Papers , Paper 19-09

Working Paper
Skewness and Time-Varying Second Moments in a Nonlinear Production Network: Theory and Evidence
Dew-Becker, Ian; Vedolin, Andrea (2025-09-04)
This paper studies asymmetry in economic activity in a multisector model with shocks to productivity and labor wedges. Complementarity across inputs—creating nonlinear intersectoral interactions—creates negative skewness. The analysis generates additional predictions—skewness is smaller at the sector than aggregate level, sector-specific shocks are unskewed, and sector centrality rises following negative shocks—and finds empirical support for them. Skewness arising out of intersector interactions helps reconcile differences in skewness at the micro and macro level. Finally, we show ...
Working Paper Series , Paper WP 2025-18

Journal Article
The global saving glut and the fall in U.S. real interest rates: A 15-year retrospective
Barsky, Robert; Easton, Matthew (2021-03-31)
The authors revisit Ben Bernanke’s global saving glut (GSG) hypothesis from 2005—which links low long-term real interest rates in the United States to excess saving in a number of non-Western countries, including, but not limited to, China. Using an analytical framework and empirical data, they find that the ability of the GSG hypothesis to explain the fall in long-term real rates between 2002 and 2006 is likely much greater than its ability to account for the further fall in these rates from the Great Recession onward.
Economic Perspectives , Issue EP-2021-1 , Pages 15

Working Paper
Why Have Interest Rates Fallen Far Below the Return on Capital
Marx, Magali; Velde, Francois R.; Mojon, Benoit (2018-01-25)
Risk-free rates have been falling since the 1980s while the return on capital has not. We analyze these trends in a calibrated OLG model with recursive preferences, designed to encompass many of the "usual suspects'' cited in the debate on secular stagnation. Declining labor force and productivity growth imply a limited decline in real interest rates and deleveraging cannot account for the joint decline in the risk free rate and increase in the risk premium. If we allow for a change in the (perceived) risk to productivity growth to fit the data, we find that the decline in the risk-free rate ...
Working Paper Series , Paper WP-2018-1

Working Paper
Debt Limits and Credit Bubbles in General Equilibrium
Phan, Toan; Vailakis, Yiannis; Martins-da-Rocha, V. Filipe (2019-10-11)
We provide a novel characterization of self-enforcing debt limits in a general equilibrium framework of risk sharing with limited commitment, where defaulters are subject to recourse (a fractional loss of current and future endowments) and exclusion from future credit. We show that debt limits are exactly equal to the present value of recourse plus a credit bubble component. We provide applications to models of sovereign debt, private collateralized debt, and domestic public debt. Implications include an original equivalence mapping among distinct institutional arrangements, thereby ...
Working Paper , Paper 19-19

Working Paper
Common Factors, Trends, and Cycles in Large Datasets
Barigozzi, Matteo; Luciani, Matteo (2017-11-13)
This paper considers a non-stationary dynamic factor model for large datasets to disentangle long-run from short-run co-movements. We first propose a new Quasi Maximum Likelihood estimator of the model based on the Kalman Smoother and the Expectation Maximisation algorithm. The asymptotic properties of the estimator are discussed. Then, we show how to separate trends and cycles in the factors by mean of eigenanalysis of the estimated non-stationary factors. Finally, we employ our methodology on a panel of US quarterly macroeconomic indicators to estimate aggregate real output, or Gross ...
Finance and Economics Discussion Series , Paper 2017-111

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