We study optimal monetary policy in a New Keynesian model at the zero bound interest rate where households use cash alongside house equity borrowing to conduct transactions. The amount of borrowing is limited by a collateral constraint. When either the loan to value ratio declines or house...

In this paper we investigate the role of macroeconomic stabilization policies for the international transmission of productivity shocks and their effects on the external sector. We develop a two-country stochastic Dynamic New-Keynesian “perpetual youth” model of the business cycle with...

In response to the Great Financial Crisis, the Federal Reserve, the Bank of England and many other central banks have adopted unconventional monetary policy instruments. We investigate if one of these, purchases of long-term government debt, could be a valuable addition to conventional...

This paper is based on presentation given at the June 2011 Conference of the Centre for Growth and Business Cycle Research at the University of Manchester. It reviews key features of the 2007-08 financial crisis, the subsequent 'great recession' and the European public debt problems; in the...

We characterise optimal discretionary monetary policy responses to cost-push shocks and to financial distress in the presence of model uncertainty. Under robust control, the central bank reacts more aggressively to both types of shocks, and less to the lagged policy rate, than if the true model...

Since its creation the euro area suffered from imbalances between its core and peripheral members. This paper checks whether macroprudential policy applied to the peripheral countries could contribute to providing more macroeconomic stability in this region. To this end we build a two-economy...