We study the welfare performance of various simple monetary policy rules under bounded rationality (BR) along the lines of Gabaix (2020) in a New Keynesian model with sticky wages and an effective lower bound (ELB) on interest rates. Policy strategies with a strong history dependence lose their...

Heterogeneous-agent New Keynesian models with sticky nominal wages usually assume that wage-setting unions demand the same amount of hours from all households. As a result, unions do not take account of the fact that (i) households are heterogeneous in their willingness to work, and that (ii)...

We study whether a central bank should deviate from its objective of price stability to promote financial stability. We tackle this question within a textbook New Keynesian model augmented with capital accumulation and microfounded endogenous financial crises. We compare several interest rate...

We estimate indicators of aggregate demand and supply conditions based on a structural factor model using a large number of inflation and real activity measures for the United States. We identify demand and supply factors by imposing theoretically motivated sign restrictions on factor loadings....

Occasionally binding constraints (OBCs) like the zero lower bound (ZLB) can lead to multiple equilibria, and so to belief-driven recessions. To aid in finding policies that avoid this, we derive existence and uniqueness conditions for otherwise linear models with OBCs. Our main result gives...