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Working Paper
Institutional quality, the cyclicality of monetary policy and macroeconomic volatility
Duncan, Roberto (2013-12-31)
In contrast to industrialized countries, emerging market economies are characterized by proor acyclical monetary policies and high output volatility. This paper argues that those facts can be related to a long-run feature of the economy - namely, its institutional quality (IQL). The paper presents evidence that supports the link between an index of IQL (law and order, government stability, investment profile, etc.), and (i) the cyclicality of monetary policy, and (ii) the volatilities of output and the nominal interest rate. In a DSGE model, foreign investors that choose a portfolio of direct ...
Globalization Institute Working Papers , Paper 163

Working Paper
A Macroeconomic Model of Central Bank Digital Currency
Paul, Pascal; Ulate, Mauricio; Wu, Jing Cynthia (2024-04-08)
We develop a quantitative New Keynesian DSGE model to study the introduction of a central bank digital currency (CBDC): government-backed digital money available to retail consumers. At the heart of our model are monopolistic banks with market power in deposit and loan markets. When a CBDC is introduced, households benefit from an expansion of liquidity services and higher deposit rates as bank deposit market power is curtailed. However, deposits also flow out of the banking system and bank lending contracts. We assess this welfare trade-off for a wide range of economies that differ in their ...
Working Paper Series , Paper 2024-11

Working Paper
Macroeconomic Dynamics Near the ZLB : A Tale of Two Countries
Schorfheide, Frank; Cuba-Borda, Pablo A.; Aruoba, S. Boragan (2016-05)
We compute a sunspot equilibrium in an estimated small-scale New Keynesian model with a zero lower bound (ZLB) constraint on nominal interest rates and a full set of stochastic fundamental shocks. In this equilibrium a sunspot shock can move the economy from a regime in which inflation is close to the central bank's target to a regime in which the central bank misses its target, inflation rates are negative, and interest rates are close to zero with high probability. A nonlinear filter is used to examine whether the U.S. in the aftermath of the Great Recession and Japan in the late 1990s ...
International Finance Discussion Papers , Paper 1163

Working Paper
Optimal Monetary Policy for the Masses
Bullard, James B.; DiCecio, Riccardo (2021-01-20)
We study nominal GDP targeting as optimal monetary policy in a simple and stylized model with a credit market friction. The macroeconomy we studyhas considerable income inequality, which gives rise to a large private sector credit market. There is an important credit market friction because households participating in the credit market use non-state contingent nominal contracts (NSCNC). We extend previous results in this model by allowing for substantial intra-cohort heterogeneity. The heterogeneity is substantial enough that we can approach measured Gini coefficients for income, financial ...
Working Papers , Paper 2019-009

Working Paper
Cash-in-the-Market Pricing in a Model with Money and Over-the-Counter Financial Markets
Nosal, Ed; Mattesini, Fabrizio (2011-11-13)
Entrepreneurs need cash to finance their real investments. Since cash is costly to hold, entrepreneurs will underinvest. If entrepreneurs can access financial markets prior to learning about an investment opportunity, they can sell some of their less liquid assets for cash and, as a result, invest at a higher level. When financial markets are over-the-counter, the price that the entrepreneur receives for the assets that he sells depends on the amount of liquidity (cash) that is in the OTC market: Greater levels of liquidity lead to higher asset prices. Since asset prices are linked to ...
Working Paper Series , Paper WP-2013-24

Working Paper
Unconventional monetary policy and the behavior of shorts
Planchon, Jade; McInish, Thomas H.; Neely, Christopher J. (2017-10-27)
In November 2008, the Federal Reserve announced the first of a series of unconventional monetary policies, which would include asset purchases and forward guidance, to reduce long-term interest rates. We investigate the behavior of shorts, considered sophisticated investors, before and after a set of these unconventional monetary policy announcements that spot bond markets did not fully anticipate. Short interest in agency securities systematically predicts bond price changes and other asset returns on the days of monetary announcements, particularly when growth or monetary news is released, ...
Working Papers , Paper 2017-31

Discussion Paper
Monetary Policy and Money Market Funds in Europe
Cipriani, Marco; Fricke, Daniel; Greppmair, Stefan; La Spada, Gabriele; Paludkiewicz, Karol (2024-04-11)
As shown in a past Liberty Street Economics post, in the United States, the yields of money market fund (MMF) shares respond to changes in monetary policy rates much more than the rates of bank deposits; in other words, the MMF beta is much higher than the deposit beta. Consistent with this, the size of the U.S. MMF industry fluctuates over the interest rate cycle, expanding during times of monetary policy tightening. In this post, we show that the relationship between the policy rates of the European Central Bank (ECB) and the size of European MMFs investing in euro-denominated securities is ...
Liberty Street Economics , Paper 20240411

Working Paper
No Firm Is an Island? How Industry Conditions Shape Firms’ Expectations
Andrade, Philippe; Coibion, Olivier; Gautier, Erwan; Gorodnichenko, Yuriy (2020-08-01)
We study how firms’ expectations and actions are affected by both aggregate and industry-specific conditions using a survey of French manufacturing firms. We document an important new stylized fact. In response to industry-level shocks that have no aggregate effects, firms’ aggregate expectations respond persistently. This is consistent with “island” models in which firms use the local prices they observe to make inferences about broader aggregate conditions. We then assess the extent to which these patterns are related to observable characteristics of firms and the industries in ...
Working Papers , Paper 20-17

Working Paper
Assessing the Impact of Central Bank Digital Currency on Private Banks
Andolfatto, David (2018-10-05)
I investigate the theoretical impact of central bank digital currency (CBDC) on a monopolistic banking sector. The framework combines the Diamond (1965) model of government debt with the Klein (1971) and Monti (1972) model of banking. There are two main results. First, the introduction of interest-bearing CBDC increases financial inclusion, diminishing the demand for physical cash. Second, while interest-bearing CBDC reduces monopoly profit, it need not disintermediate banks in any way. CBDC may, in fact, lead to an expansion of bank deposits if CBDC competition compels banks to raise their ...
Working Papers , Paper 2018-026

Report
The 2011 and 2012 Surveys of Consumer Payment Choice: Technical Appendix
Angrisani, Marco; Foster, Kevin; Hitczenko, Marcin (2014-10-01)
This document serves as the technical appendix to the 2011 and 2012 Surveys of Consumer Payment Choice. The Survey of Consumer Payment Choice (SCPC) is an annual study designed primarily to study the evolving attitudes to and use of various payment instruments by consumers over the age of 18 in the United States. The main report, which introduces the survey and discusses the principal economic results, can be found here. In this data report, we detail the technical aspects of the survey design, implementation, and analysis.
Consumer Payments Research Data Reports , Paper 2014-02

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