Robert Solow has criticized our 2006 Journal of Economic Perspectives essay describing "Modern Macroeconomics in Practice." Solow eloquently voices the commonly heard complaint that too much macroeconomic work today starts with a model with a single type of agent. We argue that modern...

We analyze optimal monetary policy in a sticky price model with open market operations. The central bank sets the policy rate and can, additionally, control the amount of money by rationing money supplied against eligible securities. Optimal policy under money rationing is shown to enhance...

The global economy has a chronic shortage of safe assets which lies behind many recent macroeconomic imbalances. This paper provides a simple model of the Safe Asset Mechanism (SAM), its recessionary safety traps, and its policy antidotes. Safety traps share many common features with...

Most American financial crises of the postbellum gold-standard era were caused by fluctuations in the cotton harvest due to exogenous factors such as weather. The transmission channel ran through export revenues and financial markets under the pre-1914 monetary regime. A poor cotton harvest...

There is a demand for safe assets, either government bonds or private substitutes, for use as collateral. Government bonds are safe assets, given the government's power to tax, but their supply is driven by fiscal considerations, and does not necessarily meet the private demand for safe assets....

We explain the large observed volatility of commercial and industrial loans as a Markov equilibrium of an economy with limited commitment in which all credit is unsecured and self-enforcing. Aggregate income growth shocks affect gains from future asset market trading, inducing fluctuations in...

This paper examines the impact of different types of oil price shocks on the U.S. economy, using a factor-augmented VAR (FAVAR) approach. The results indicate that when examining the effects of oil price shocks, it is important to account for the interaction between the oil market and the...

After presenting a brief overview of the recent financial crisis and the European debt crisis that followed in its wake, this paper goes on discuss monetary policy in the United States, the United Kingdom and the Euro bloc prior to and during the course of the two crises. The paper presents...

This paper studies the dynamic properties of a standard cash-in-advance model modified to include habit persistence over preferences. The central bank is assumed to follow an exogenous money growth rule. We show that equilibrium real indeterminacy is more likely to occur when habit persistence...

We reassess the relationship between money and output using quarterly data from the US economy. We use several tools based on wavelets, the wavelet power transform and the wavelet coherence with which we analyze this relationship in both time and frequency. We find evidence of a weaker...