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Prevalent thinking about liquidity traps suggests that the perfect substitutability of money and bonds at a zero short-term nominal interest rate renders open-market operations ineffective for achieving macroeconomic stabilization goals. In an earlier paper, we showed that this reasoning does...
Persistent link: https://www.econbiz.de/10013133109
The paper presents an intertemporal general equilibrium model with rationing in the product market, in which stationary sunspot equilibria are shown to exist, indicating the possibility of fluctuations in economic activity simply due to self-fulfilling variations in economic agents'...
Persistent link: https://www.econbiz.de/10013138365
While many analyses of monetary policy consider only a target for a short-term nominal interest rate, other dimensions of policy have recently been of greater importance: changes in the supply of bank reserves, changes in the assets acquired by central banks, and changes in the interest rate...
Persistent link: https://www.econbiz.de/10013139902
In previous work (Eggertsson and Woodford, 2003), we characterized the optimal conduct of monetary policy when a real disturbance causes the natural rate of interest to be temporarily negative, so that the zero lower bound on nominal interest rates binds, and showed that commitment to a...
Persistent link: https://www.econbiz.de/10013102000
A number of commentators have argued that the desirability of inflation targeting as a framework for monetary policy analysis should be reconsidered in light of the global financial crisis, on the ground that it requires neglect of the implications of monetary policy for financial stability....
Persistent link: https://www.econbiz.de/10013108003
We consider the effects of central-bank purchases of a risky asset, financed by issuing riskless nominal liabilities (reserves), as an additional dimension of policy alongside "conventional" monetary policy (central-bank control of the riskless nominal interest rate), in a general-equilibrium...
Persistent link: https://www.econbiz.de/10013071897
There is a large and growing empirical literature that tests forthe existence of asset-price bubbles or quot;sunspotquot; equilibria -- equilibria unrelated to market fundamentals. Our view is that even tests for non-stationary asset-price bubbles should not be interpreted as such. In the...
Persistent link: https://www.econbiz.de/10012774699
;tax-smoothingquot; theory of government deficits, which predicts that the inflation tax follows approximately a martingale, and of models of …
Persistent link: https://www.econbiz.de/10012774830
It has recently become popular to argue that globalization has had or will soon have dramatic consequences for the nature of the monetary transmission mechanism, and it is sometimes suggested that this could threaten the ability of national central banks to control inflation within their...
Persistent link: https://www.econbiz.de/10012776195
I consider some of the leading arguments for assigning an important role to tracking the growth of monetary aggregates when making decisions about monetary policy. First, I consider whether ignoring money means returning to the conceptual framework that allowed the high inflation of the 1970s....
Persistent link: https://www.econbiz.de/10012776198