We develop a framework for modelling differences in liquidity across assets in order to examine the interactions between asset prices, liquidity premia and aggregate activity. In so doing, we want to find out what role government policy might have through open market operations that change the...

We estimate a forward-looking monetary policy reaction function for the postwar United States economy, before and after Volcker's appointment as Fed Chairman in 1979. Our results point to substantial differences in the estimated rule across periods. In particular, interest rate policy in the...

The authors analyze the response of small versus large manufacturing firms to monetary policy. The goal is to obtain evidence on the importance of financial propagation mechanisms for aggregate activity. The authors find that small firms account for a significantly disproportionate share of the...

We explore the implications of current account adjustment for monetary policy within a simple two-country DSGE model. Our framework nests Obstfeld and Rogoff’s (2005) static model of exchange rate responsiveness to current account reversals. It extends this approach by endogenizing the dynamic...

Financial stability is an important goal of policy, but the relation of financial stability to economic performance and even the meaning of the term itself are poorly understood. This paper explores these issues in a theoretical model. The authors argue that financial instability, or fragility,...