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Conference Paper
Crowding out redefined: the role of reserve accumulation
Reinhart, Carmen M.; Tashiro, Takeshi (2013-11)
It is well understood that investment serves as a shock absorber at the time of crisis. The duration of the drag on investment, however, is perplexing. For the nine Asian economies we focus on in this study, average investment/GDP is about 6 percentage points lower during 1998-2012 than its average level in the decade before the crisis; if China and India are excluded, the estimated decline exceeds 9 percent. We document how in the wake of crisis home bias in finance usually increases markedly as public and private sectors look inward when external financing becomes prohibitively costly, ...
Proceedings , Issue Nov , Pages 1-43

Working Paper
A Macroeconomic Model of Central Bank Digital Currency
Paul, Pascal; Ulate, Mauricio; Wu, Jing Cynthia (2025-06-25)
We develop a quantitative New Keynesian DSGE model with monopolistic banks to study the macroeconomic effects of introducing a central bank digital currency (CBDC). Households benefit from an expansion of liquidity services and higher deposit rates as bank deposit market power is curtailed, while bank profitability and lending decline. We assess this trade-off for a wide range of economies that differ in their level of interest rates. We find substantial welfare gains from introducing a CBDC with an optimal rate that can be approximated by a simple rule of thumb: the maximum between 0% and ...
Working Paper Series , Paper 2024-11

Working Paper
Unconventional monetary policy and the dollar: conventional signs, unconventional magnitudes
Leduc, Sylvain; Glick, Reuven (2015-11-29)
We examine the effects of unconventional monetary policy surprises on the value of the dollar using high-frequency intraday data and contrast them with the effects of conventional policy tools. Identifying monetary policy surprises from changes in interest rate future prices in narrow windows around policy announcements, we find that monetary policy surprises since the Federal Reserve lowered its policy rate to the effective lower bound have had larger effects on the value of the dollar. In particular, we document that the impact on the dollar has been roughly three times that following ...
Working Paper Series , Paper 2015-18

Working Paper
Keynesian inefficiency and optimal policy: a new monetarist approach
Williamson, Stephen D. (2014-03-01)
A simple model of monetary/labor search is constructed to study Keynesian indeterminacy and optimal policy. In the model, economic agents have trouble splitting the surplus from exchange appropriately, and we consider monetary and fiscal policies that correct this Keynesian inefficiency. A Taylor rule does not imply determinacy, nor does it support an efficient outcome, in general. Optimal policies yield an efficient and determinate allocation of resources, but equilibrium policy actions, wages, and prices are indeterminate at the optimum.
Working Papers , Paper 2014-9

Conference Paper
Macroeconomic Policy in an Uneven Economy: An Introduction to the Bank's 2021 Economic Symposium
Gruber, Joseph W. (2021-08-27)
Proceedings - Economic Policy Symposium - Jackson Hole

Working Paper
The Intermittent Phillips Curve: Finding a Stable (But Persistence-Dependent) Phillips Curve Model Specification
Verbrugge, Randal; Ashley, Richard (2023-02-14)
We establish that the Phillips curve is persistence-dependent: inflation responds differently to persistent versus moderately persistent (or versus transient) fluctuations in the unemployment rate gap. This persistence-dependent relationship appears to align with business-cycle stages and is thus consistent with existing theory. Previous work fails to model this dependence, thereby finding numerous "inflation puzzles" – e.g., missing inflation/disinflation – noted in the literature. Our specification eliminates these puzzles; for example, the Phillips curve has not weakened, nor was ...
Working Papers , Paper 19-09R2

Working Paper
Should monetary policy \"lean or clean\"?
White, William R. (2009)
It has been contended by many in the central banking community that monetary policy would not be effective in "leaning" against the upswing of a credit cycle (the boom) but that lower interest rates would be effective in "cleaning" up (the bust) afterwards. In this paper, these two propositions (can't lean, but can clean) are examined and found seriously deficient. In particular, it is contended in this paper that monetary policies designed solely to deal with short term problems of insufficient demand could make medium term problems worse by encouraging a buildup of debt that cannot be ...
Globalization Institute Working Papers , Paper 34

Working Paper
Does a Big Bazooka Matter? Central Bank Balance-Sheet Policies and Exchange Rates
Dedola, Luca; Mehl, Arnaud; Grab, Johannes; Georgiadis, Georgios (2018-11-02)
We estimate the effects of quantitative easing (QE) measures by the ECB and the Federal Reserve on the US dollar-euro exchange rate at frequencies and horizons relevant for policymakers. To do so, we derive a theoretically-consistent local projection regression equation from the standard asset pricing formulation of exchange rate determination. We then proxy unobserved QE shocks by future changes in the relative size of central banks? balance sheets, which we instrument with QE announcements in two-stage least squares regressions in order to account for their endogeneity. We find that QE ...
Globalization Institute Working Papers , Paper 350

Report
Fragility of Safe Asset Markets
Phelan, Gregory; Eisenbach, Thomas M. (2022-07-01)
In March 2020, safe asset markets experienced surprising and unprecedented price crashes. We explain how strategic investor behavior can create such market fragility in a model with investors valuing safety, investors valuing liquidity, and constrained dealers. While safety investors and liquidity investors can interact symbiotically with offsetting trades in times of stress, liquidity investors’ strategic interaction harbors the potential for self-fulfilling fragility. When the market is fragile, standard flight-to-safety can have a destabilizing effect and trigger a “dash-for-cash” by ...
Staff Reports , Paper 1026

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

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