The European Central Bank is unique in setting monetary policy for several sovereign states with heterogeneous debt levels and different maturity structures. The monetary-fiscal nexus is central to the functioning of the euro area. We focus on one particular aspect of that nexus, the effect the...

Many central banks whose exchange rate regimes are classified as flexible are reluctant to let the exchange rate fluctuate. This phenomenon is known as "fear of floating". We present a simple theory in which fear of floating emerges as an optimal policy outcome. The key feature of the model is...

This paper studies the transmission channels of monetary and macroprudential policies in an open economy framework and evaluates the normative implications for international spillovers and global welfare. An analytical decomposition uncovers the prominent role of expenditure switching for...

Financial integration generates macroeconomic spillovers that may require international monetary policy coordination. We show that individual central banks may set nominal interest rates too low or too high relative to the cooperative outcome. We identify three sufficient statistics that...

Amidst the recent resurgence of inflation, this paper investigates the interplay of corporate profits and income distribution in shaping inflation and aggregate demand within the New Keynesian framework. We derive a novel analytical condition for profits to be procyclical and inflationary....

The fiscal theory states that inflation adjusts so that the real value of government debt equals the present value of real primary surpluses. Monetary policy remains important. The central bank can set an interest rate target, which determines the path of expected inflation, while news about the...

This paper shows that there is more scope for a borrower to engage in a sustainable infinite debt rollover (a "Ponzi scheme") when interest/growth rates are stochastic. In this context, I prove that the relevant "r vs. g" comparison uses the yield r_{long} to an infinite-maturity zero-coupon...

In the past decade, a new paradigm for fiscal and monetary policy analysis has emerged, combining the canonical macro model of income and wealth inequality with the New Keynesian model. These Heterogeneous-Agent New Keynesian ("HANK") models feature new transmission channels and allow for the...

We model a reinsurance mechanism for the national unemployment insurance programs of euro area member states. The risk-sharing scheme we analyze is designed to smooth country-level unemployment risk and expenditures around each country's median level, so that participation and contributions...

We study the effects of monetary-policy-induced changes in Tobin's q on corporate investment and capital structure. We develop a theory of the mechanism, provide empirical evidence, evaluate the ability of the quantitative theory to match the evidence, and quantify the relevance for monetary...