Standard New Keynesian models deliver puzzling results at the effective lower bound of short-term interest rates: greater price flexibility amplifies the fall in output in response to adverse demand shocks; labour tax cuts are contractionary; the multipliers of wasteful government spending are...

We examine whether emerging market prudential policies offset the macro-financial spillover effects of US monetary policy. We find that emerging markets with tighter overall prudential policy face significantly smaller, and less negative, spillovers to total credit from US monetary policy...

We show that interest rate rules that feed back on the growth rates of target variables (such as output or asset prices) may induce recessions in the presence of a zero lower bound, through purely self-fulfilling dynamics. This pathology is illustrated in a small New Keynesian model with...

Long-term asset purchases carried out by central banks increase the consumption volatility of households holding long-term debt. For this reason, monetary authorities should not just aim at stabilising inflation and the output gap but also mitigate the volatility of their balance sheet. In...

The existence of and uncertainty about structural change in the economy are important features facing policymakers. This paper considers the implications for policy design of uncertainty about structural change, modelling the time variation in parameters of forward-looking models as Markov...

This paper studies optimal time‑consistent monetary policy in a simple New Keynesian model with long‑term nominal government debt. Fiscal policy is ‘active’, so that stabilisation of the government debt stock is a binding constraint on monetary policy. Away from the lower bound on the...

We document that UK government bond yields systematically rise in a two-day window before Monetary Policy Committee (MPC) meetings, which we refer to as pre-MPC windows. The effect concentrates on pre-MPC windows that coincide with new issuance of government bonds. Decomposing the effect into an...

The purpose of this paper is to examine how important an improvement in global monetary policy might be for the macroeconomic performance of a small open economy such as the United Kingdom. Our paper contributes to the literature by proposing a new methodology to treat indeterminate solutions...

When the economy is in a liquidity trap and households have a precautionary motive to save against unemployment risk, adverse demand shocks cause severe deflationary spirals and output contractions. In this context, we study the implications of optimal monetary policy, which consists of keeping...

This paper uses kernel methods to estimate a seven variable time-varying (TV) vector autoregressive (VAR) model on the US data set constructed by Smets and Wouters. We use an indirect inference method to map from this TV VAR to time variation in implied Dynamic Stochastic General Equilibrium...