In standard monetary models nominal interest rates should be decreased in response to a switch to a lower inflation target. This paper considers this interaction between inflation and nominal interest rates in a dynamic model of liquidity. In a repeated Diamond&Dybvig economy a financial...

The previous literature on optimal monetary policy has focused mainly on dynamic stochastic general equilibrium models with a constant aggregate capital stock (cf. Woodford 1999; Erceg et al. 2000). In this paper, we analyze the monetary policy implications of endogenous capital accumulation. We...

This paper reexamines the role of open market operations for short-run effects of monetary policy in a New Keynesian framework. The central bank supplies money in exchange for securities that are discounted with the short-run nominal interest rate, while money demand is induced by a liquidity...

Models where money arises due to a transactions motive imply that an increase in aggregate activity will raise the demand for money. Models where money arises due to money being the most preferred form of precautionary savings imply that a decrease in individual uncertainty will lower the demand...

How can a particular allocation and prices be implemented? Under what conditions does a policy deliver a unique competitive equilibrium? How many degrees of freedom there are in the determination of the policy variables, or how many are the instruments of policy? In this paper we analyze a...

This paper combines default, settlement, and repayment history into a unified, dynamic borrowing model of sovereign debt. The model addresses two questions: 1) how the level of debt and the income profile affect the length of time a country in default is excluded from the international credit...

This paper proposes a model of endogenous fluctuations in investment. A monopolistic producer has an incentive to invest when the aggregate demand is high. This causes a propagation of investment across sectors. When the investment follows an (S,s) policy, the propagation size can exhibit a...

This paper proposes a strategy to measure, in a unified setting, how the job finding probability and the job separation probability conditional on observable and unobservable individual characteristics varies over the business cycle. Recent papers by Shimer and Hall point out how new...

This paper studies co-movement in economic aggregates at the national and international level. At the national level, consumption, investment and hours worked display positive co-movement across the business cycle. Technology shocks, which directly affect the real wage rate, can drive...