This paper examines how supply-side policies may play a role in fighting a low aggregate demand that traps an economy at the zero lower bound (ZLB) of nominal interest rates. Future increases in productivity or reductions in mark-ups triggered by supply-side policies generate a wealth effect...

This paper analyses two-way interactions between structural reform and macroeconomic policy. If structural reforms increase the flexibility of labour markets, they are likely to improve the short-run inflation-unemployment trade-off, providing an incentive for policy-makers to expand aggregate...

The Paper studies the inflation rate associated with optimal monetary policy in a standard suite of DSGE models, when fiscal policy is either unrestricted optimal or restricted but supportive of monetary policy. Full nominal price flexibility, nominal prices set one period in advance and...

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...

Motivated by the recent experience of the U.S. and the Eurozone, we describe the quantitative properties of a New Keynesian model with a zero lower bound (ZLB) on nominal interest rates, explicitly accounting for the nonlinearities that the bound brings. Besides showing how such a model can be...

Shocks to bank lending, risk-taking and securitization activities that are orthogonal to real economy and monetary policy innovations account for more than 30 percent of U.S. output variation. The dynamic effects, however, depend on the type of shock. Expansionary securitization shocks lead to a...

We study the effects of changes in uncertainty about future fiscal policy on aggregate economic activity. Fiscal deficits and public debt have risen sharply in the wake of the financial crisis. While these developments make fiscal consolidation inevitable, there is considerable uncertainty about...

Price volatility, reflecting the ability to absorb exogenous supply- or demand shocks, is an important dimension of market performance. In this paper we present a model to study the factors determining the price volatility of markets of basic foodstuffs in pre industrial societies. This model is...

Not in an estimated DSGE model of the US economy, once we account for the fact that most of the high-frequency volatility in wages appears to be due to noise, rather than to variation in workers' preferences or market power.

How and why do financial conditions matter for real outcomes? The ‘workhorse model of money and liquidity’ of Kiyotaki and Moore (2008) shows how--with full employment maintained by flexible prices--shifting credit constraints can affect investment and future aggregate supply. We show that,...