This paper studies optimal monetary policy in a model with credit frictions and money demand. We show that augmenting a standard New-Keynesian model with money demand and financial frictions generates a mechanism that, in equilibrium, gives rise to optimal negative nominal interest rates. In...

This paper examines five possible explanations for the Great Recession of 2008 and 2009, using data for the United States and the eurozone. Of these five hypotheses, four are not supported by the data, while the fifth appears reasonable.

This article shows that the "risk premium" shock in Smets and Wouters (2007) can be interpreted as a structural shock to the demand for safe and liquid assets such as short-term US Treasury securities. Several implications of this interpretation are discussed.

Empirical tests of the quantity theory and particularly the neutrality of money are based on the idea that money growth "explains", to some extent, inflation. Modern macroeconomic theory, however, considers inflation targeting central banks which use the interest rate as a policy tool, while...