We study optimal capital income taxation with a Ramsey problem and relate this optimal taxation problem to the question that has been asked in the asset pricing literature, which is why the risk free interest rate is too low. We show that the Ramsey planner chooses the optimal level of capital...

Model uncertainty has the potential to change importantly how monetary policy should be conducted, making it an issue that central banks cannot ignore. In this paper, I use a standard new Keynesian business cycle model to analyze the behavior of a central bank that conducts policy with...

This paper studies how monetary policy should respond to news about an oil discovery, using a workhorse New Keynesian model. Good news about future production can create a recession today under exchange rate pegs and a simple Taylor rule, as seen in practice. This is explained by forward-looking...

We consider the fiscal multiplier and spillover in an environment in which two countries are caught simultaneously in a liquidity trap. Using a standard New Open Economy Macroeconomics (NOEM) model, an optimizing two-country sticky price model, we show that the fiscal multiplier and spillover...

This paper analyzes the impact and effectiveness of conventional monetary policy during periods of low and high financial stress in the US economy. Using data from 1973Q1 to 2008Q4, the analysis is conducted by estimating a Threshold Vector Autoregression (TVAR) model to capture switching...

Rising economic integration in Asia and periodic volatility in global and national financial markets raise the issue of the optimal degree and form of monetary cooperation among Asian economies. There is a large literature on the benefits and costs of monetary cooperation, however, less can be...

We introduce financial market friction through search and matching in the loan market into a standard New Keynesian model. We reveal that the second order approximation of social welfare includes the terms related to credit, such as credit market tightness, the volume of credit, and the loan...

We investigate a new source of economic stickiness: namely, staggered loan interest rate contracts under monopolistic competition. The paper introduces this mechanism into a standard New Keynesian model. Simulations show that a response to a financial shock is greatly amplified by the staggered...

Opinion over the global implications of China‘s rise is divided between critics, who see it as having developed at the expense of both investment and employment in the US, Europe and Japan and proponents who emphasise improvements in the terms of trade and reductions to the cost of financing...

Product and financial market integration determine the global implications of China’s recent growth surge and its on-going transition from export led growth. These alter China’s structural imbalance (its excess product supply and excess saving), which in turn shifts the...