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Unconventional Monetary Policies and Inequality
Lee, Donggyu (2024-07-01)
This paper examines the effects of unconventional monetary policies on household welfare across the wealth distribution following the Great Recession. Using a heterogeneous agent New Keynesian model, estimated with Bayesian methods, I analyze how forward guidance and quantitative easing affected inequality during this period. The findings show that while these policies boosted economic activity and benefited all households, they had non-linear distributional effects. Unconventional monetary policies reduced inequality within the bottom 90 percent by lowering unemployment but widened the ...
Staff Reports , Paper 1108

Working Paper
Monetary policy through production networks: evidence from the stock market
Weber, Michael; Ozdagli, Ali K. (2017-10-01)
Monetary policy shocks have a large impact on stock prices during narrow time windows centered around press releases by the FOMC. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct effect and a network effect. We attribute 50 to 85 percent of the overall impact to network effects. The decomposition is a robust feature of the data, and we confirm large network effects in realized cash-flow fundamentals. A simple model with intermediate inputs allows a structural interpretation of our empirical strategy. Our findings indicate that production ...
Working Papers , Paper 17-15

Working Paper
Sticky Leverage: Comment
Ajello, Andrea; Pérez-Orive, Ander; Szőke, Bálint (2023-07-26)
We revisit the role of long-term nominal corporate debt for the transmission of inflation shocks in the general equilibrium model of Gomes, Jermann, and Schmid (2016, henceforth GJS). We show that inaccuracies in the model solution and calibration strategy lead GJS to a model equilibrium in which nominal long-term debt is systematically mispriced. As a result, the quantitative importance of corporate leverage in the transmission of inflation shocks to real activity in their framework is 6 times larger than what arises under the rational expectations equilibrium.
Finance and Economics Discussion Series , Paper 2023-051

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Tradeoffs for the Poor, Divine Coincidence for the Rich
Del Negro, Marco; Diagne, Ibrahima; Dogra, Keshav; Gundam, Pranay; Lee, Donggyu; Pacula, Brian (2025-04-01)
We use an estimated medium-scale HANK model to investigate how the tradeoff between stabilizing inflation and consumption volatility varies for households with different levels of wealth. Consumption for the rich is mostly affected by demand shocks via their exposure to highly procyclical profits—for them, stabilizing consumption and inflation coincide. The poor are more vulnerable to supply shocks, hence aggressively stabilizing inflation is costly in terms of their consumption volatility. While they dislike inflation because it erodes real wages, they are hurt even more by an aggressive ...
Staff Reports , Paper 1147

Working Paper
What Does Anticipated Monetary Policy Do?
King, Thomas B.; D'Amico, Stefania (2015-11-10)
Forward rate guidance, which has been used with increasing regularity by monetary policymakers, relies on the manipulation of expectations of future short-term interest rates. We identify shocks to these expectations at short and long horizons since the early 1980s and examine their effects on contemporaneous macroeconomic outcomes. Our identification uses sign restrictions on survey forecasts incorporated in a structural VAR model to isolate expected deviations from the monetary policy rule. We find that expectations of future policy easing that materialize over the subsequent four quarters ...
Working Paper Series , Paper WP-2015-10

Working Paper
Equilibrium Yield Curves and the Interest Rate Lower Bound
Nakata, Taisuke; Tanaka, Hiroatsu (2016-10)
We study the term structure of default-free interest rates in a sticky-price model with an occasionally binding effective lower bound (ELB) constraint on interest rates and recursive preferences. The ELB constraint induces state-dependency in the dynamics of term premiums by affecting macroeconomic uncertainty and interest-rate sensitivity to economic activities. In a model calibrated to match key features of the aggregate economy and term structure dynamics in the U.S. above and at the ELB, we find that the ELB constraint typically lowers the absolute size of term premiums at the ELB and ...
Finance and Economics Discussion Series , Paper 2016-085

Working Paper
Liquidity Traps and Monetary Policy: Managing a Credit Crunch
Buera, Francisco J.; Nicolini, Juan Pablo (2014-05-14)
We study a model with heterogeneous producers that face collateral and cash in advance constraints. These two frictions give rise to a non-trivial financial market in a monetary economy. A tightening of the collateral constraint results in a credit-crunch generated recession. The model can suitable be used to study the effects on the main macroeconomic variables - and on welfare of each individual - of alternative monetary - and fiscal - policies following the credit crunch. The model reproduces several features of the recent financial crisis, like the persistent negative real interest rates, ...
Working Paper Series , Paper WP-2014-14

Working Paper
Doves for the Rich, Hawks for the Poor? Distributional Consequences of Monetary Policy
Nakajima, Makoto; Kuester, Keith; Goernemann, Nils (2016-05)
We build a New Keynesian business-cycle model with rich household heterogeneity. A central feature is that matching frictions render labor-market risk countercyclical and endogenous to monetary policy. Our main result is that a majority of households prefer substantial stabilization of unemployment even if this means deviations from price stability. A monetary policy focused on unemployment stabilization helps Main Street" by providing consumption insurance. It hurts Wall Street" by reducing precautionary saving and, thus, asset prices. On the aggregate level, household heterogeneity ...
International Finance Discussion Papers , Paper 1167

Working Paper
Get the Lowdown: The International Side of the Fall in the U.S. Natural Rate of Interest
Martinez-Garcia, Enrique (2021-02-20)
I investigate the downward drift of U.S. interest rates from 1984:Q1 to 2019:Q4. For this, I bring the workhorse two-country New Keynesian model to data on the U.S. and an aggregate of its major trading partners using Bayesian techniques. I show that the U.S. natural (or equilibrium) interest rate recovered from the model has fallen more gradually than the long-run U.S. real rate, cushioned by productivity shocks. Since inflation expectations became well-anchored in the ‘90s, this implies that the continued interest rate decline is largely explained by the real rate tracking the natural ...
Globalization Institute Working Papers , Paper 403

Working Paper
Get the Lowdown: The International Side of the Fall in the U.S. Natural Rate of Interest
Martinez-Garcia, Enrique (2020-10-22)
Much consideration has been given among scholars and policymakers to the decline in the U.S. natural rate of interest since the 2007 – 09 global financial crisis. In this paper, I investigate its determinants and drivers through the lens of the workhorse two-country New Keynesian model that captures the trade and technological interconnectedness of the U.S. with the rest of the world economy. Using Bayesian techniques, I bring the set of binding log-linearized equilibrium conditions from this model to the data, but augmented with survey-based forecasts in order to align the solution with ...
Globalization Institute Working Papers , Paper 403

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