Despite the fact that efforts to identify it empirically have largely been futile, the liquidity effect plays a central role in conventional monetary theory and policy. Recently, however, an increasing volume of empirical work [Christiano and Eichenbaum (1992a,b), Christiano, Eichenbaum and...

In an environment of low inflation, the Federal Reserve faces the risk that it has not provided enough monetary stimulus even when it has pushed the short-term nominal interest rate to its lower bound of zero. Assuming the nominal Treasury-bill rate has been lowered to zero, this paper considers...

This paper investigates the effectiveness of one of the Fed’s unconventional monetary policy tools, the term auction facility (TAF). At issue is whether the TAF reduced the spread between LIBOR rates and equivalent-term Treasury rates by reducing the liquidity premium embedded in LIBOR rates....

We use a general equilibrium finance model that features explicit government purchases of private debts to shed light on some of the principal working mechanisms of the Federal Reserve’s large-scale asset purchases (LSAP) and their macroeconomic effects. Our model predicts that unless private...

The Chicago Board Options Exchange concurrently listed European-style and American-style options on the Standard and Poor?s 500 Index from April 2, 1986 through June 20, 1986. We match near-the-money American option quotes with the most nearly contemporaneous, otherwise identical, European...

It is widely believed in the literature that inventory fluctuations are destabilizing to the economy. This paper re-assesses this view by developing an analytically-tractable general-equilibrium model of inventory dynamics based on a precautionary stockout-avoidance motive. The model's...

Money demand models overpredicted M2 growth in the United States from 1990 to 1993. We examine this overprediction using a model of household demand for liquid wealth. The model is a dynamic generalization of the almost-ideal demand model of Deaton and Muellbauer (1980). We find that the...

We investigate the pairwise correlations of 11 U.S. fixed income yield spreads over a sample that includes the Great Financial Crisis of 2007-2009. Using cross-sectional methods and non- parametric bootstrap breakpoint tests, we characterize the crisis as a period in which pairwise correlations...

Recently, there has been considerable interest in identifying the exogenous policy actions of the Fed and a number of identification methods have been proposed. This paper deals with one of these, namely, using nonborrowed reserves in a recursive structural vector autoregression(VAR). A number...

This paper provides an analytically tractable general-equilibrium model of money demand with micro-foundations. The model is based on the incomplete-market model of Bewley (1980) where money serves as a store of value and provides liquidity to smooth consumption. The model is applied to study...