We show that if the central bank operates without commitment and faces constraints on its balance sheet, helicopter drops can be a useful stabilization tool during a liquidity trap. With commitment, even with balance sheet constraints, helicopter drops are irrelevant

Central banks have sometimes turned their attention to long-term interest rates as a target or as a diagnosis of policy. This paper describes two historical episodes when this happened - the US in 1942-51 and the UK in the 1960s - and uses a model of inflation dynamics to evaluate monetary...

This paper derives the curvature properties of the short-run Phillips curve in a class of canonical models of price-setting frictions. Contrary to conventional thinking, the Phillips curve is asymptotically horizontal for high levels of economic activity and asymptotically vertical for low...

This paper estimates a nonlinear Threshold-VAR to investigate if a Keynesian liquidity trap due to a speculative motive was in place in the U.S. Great Depression and the recent Great Recession. We find clear evidence in favor of a breakdown of the liquidity effect after an unexpected increase in...

Monetary policy shocks have a large impact on aggregate stock market returns in narrow event windows around press releases by the Federal Open Market Committee. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct (demand) effect and an indirect...

We analyze the impact of price stability-oriented monetary strategies (inflation targeting — IT — and constraining exchange rate arrangements) on inflation persistence using a time-varying coefficients framework in a panel of 68 countries (1993–2013). We show that explicit IT has a...

The Generalized Calvo and the Generalized Taylor model of price and wage-setting are, unlike the standard Calvo and Taylor counter-parts, exactly consistent with the distribution of durations observed in the data. Using price and wage micro-data from a major euro-area economy (France), we...

This brief exposition suggests that the Federal Reserve System temporarily guarantee a lower bound on stock prices in order to escape the current combination of liquidity trap and credit crunch. It shortly discusses reasons for this measure, consequences, and some alternatives. It is meant as a...

We show that, in a broad class of menu cost models, the dynamics of aggregate inflation in response to arbitrary shocks to aggregate costs are nearly the same as in Calvo models with suitably chosen Calvo adjustment frequencies. We first prove that the canonical menu cost model is first-order...