Central bank balance sheet expansion is financed by commercial banks. It involves not just a substitution of liquid central bank reserves for other assets held by commercial banks, but also a counterpart alteration in commercial bank liabilities, such as in short-term deposits issued to finance...

This paper studies a model in which a low monetary policy rate lowers the cost of capital for entrepreneurs, potentially spurring productive investment. Low interest rates, however, also induce entrepreneurs to lever up so as to increase payouts to equity. Whereas such leveraged payouts...

We investigate the transmission of central bank liquidity to bank deposits and loan spreads in Europe over the period from January 2006 to June 2010. We find evidence consistent with an impaired transmission channel due to bank risk. Central bank liquidity does not translate into lower loan...

The Chinese economy has undergone three major phases: the 1978-1997 period marked as the SOE-led economy, the 1998-2015 phase as the investment-driven economy, and the new normal economy since 2016. All three economies have been shaped by the government's financial policies, defined as a set of...

We incorporate regime switching between monetary and fiscal policies in a general equilibrium model to explain three stylized facts: (1) the positive stock-bond return correlation from 1971 to 2000 and the negative one after 2000, (2) the negative correlation between consumption and inflation...

We study the impacts of the 2009 monetary stimulus and its interaction with infrastructure spending on credit allocation. We develop a two-stage estimation approach and apply it to China's loan-level data that covers all sectors in the economy. We find that except for the manufacturing sector,...

We analyze how regulatory constraints on household leverage--in the form of loan-to-income and loan-to-value limits--affect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Supervisory loan level data suggest that mortgage credit is...

We develop a set of necessary and sufficient conditions for equilibria to be determinate in a class of forward-looking Markov-switching rational expectations models and we develop an algorithm to check these conditions in practice. We use three examples, based on the new-Keynesian model of...

This paper studies a New-Keynesian model in which monetary policy may switch between regimes. We derive sufficient conditions for indeterminacy that are easy to implement and we show that the necessary and sufficient condition for determinacy, provided by Davig and Leeper, is necessary but not...

We infer determinants of Latin American hyperinflations and stabilizations by using the method of maximum likelihood to estimate a hidden Markov model that potentially assigns roles both to fundamentals in the form of government deficits that are financed by money creation and to destabilizing...