A model is constructed in which consumers and banks have incentives to fake the quality of collateral. Conventional monetary easing can exacerbate these problems, in that the mispresentation of collateral becomes more profitable, thus increasing haircuts and interest rate differentials. Central...

A dynamic model with credit under limited commitment is constructed, in which limited memory can weaken the effects of punishment for default. This creates an endogenous role for government debt in credit markets, and the economy can be non-Ricardian. Default can occur in equilibrium, and...

A simple model of monetary/labor search is constructed to study Keynesian indeterminacy and optimal policy. In the model, economic agents have trouble splitting the surplus from exchange appropriately, and we consider monetary and fiscal policies that correct this Keynesian inefficiency. A...

We construct a model in which all consolidated government debt is used in transactions, with money being more widely acceptable. When asset market constraints bind, the model can deliver low real interest rates and positive rates of inflation at the zero lower bound. Optimal monetary policy in...

A model of money, credit, and banking is constructed in which the differential pledgeability of collateral and the scarcity of collateralizable wealth lead to a term premium — an upward-sloping nominal yield curve. Purchases of long-maturity government debt by the central bank are always a...

Rehypothecation refers to the practice of re-using (selling or pledging as collateral) an asset that has already been pledged as collateral for a loan. We develop a dynamic general equilibrium monetary model where an “asset shortage” motivates the rehypothecation of assets. We find that in...

How have U.S. commercial banks responded during the current financial crisis? What was hiding behind the dynamics of aggregate commercial bank loans through the end of 2008? We use balance sheet data for the entire population of commercial banks to construct quarterly gross credit flows (credit...

We study the contraction of Foreign Direct Investment (FDI) flows in the United States during the recent financial crisis and show their unusual non-resiliency, which depends in part on the global nature of the economic recession, but also on the increases in the cost of financing FDI in the...

Forecasting is a daunting challenge for business economists and policymakers, often made more difficult by pervasive uncertainty. No such uncertainty is more difficult than projecting the reaction of policymakers to major shifts in the economy. We explore the process by which the FOMC came to...

Numerous commentaries have questioned both the legality and appropriateness of Federal Reserve lending to banks during the recent financial crisis. This article addresses two questions motivated by such commentary: 1) Did the Federal Reserve violate either the letter or spirit of the law by...