We examine the inter-linkages between financial factors and real economic activity. We review the main theoretical approaches that allow financial frictions to be embedded into general equilibrium models. We outline, from a policy perspective, the most recent empirical papers focusing on the...

We study the information flow from the ECB on policy dates since its inception, using tick data. We show that three factors capture about all of the variation in the yield curve but that these are different factors with different variance shares in the window that contains the policy decision...

We show that firm liability structure and associated cash flow matter for firm behavior, and that financial market participants price stocks accordingly. Looking at firm level stock price changes around monetary policy announcements, we find that firms that have more cash flow exposure see their...

Central banks unexpectedly tightening policy rates often observe the exchange value of their currency depreciate, rather than appreciate as predicted by standard models. We document this for Fed and ECB policy days using event studies and ask whether an information effect, where the public...

This paper outlines important lessons for monetary policy. In particular, the role of inflation targeting, which was much acclaimed prior to the financial crisis and since then has not lost much of its endorsement, is critically reviewed. Ignoring the relation between monetary policy and asset...

Empirical credit demand analysis undertaken at the aggregate level obscures potential behavioral heterogeneity between various borrowing sectors. Looking at disaggregated data and analyzing bank loans to non-financial companies, to financial companies, to households for consumption and for house...

We develop a dynamic recursive model where political and economic decisions interact, to study how excessive debt-GDP ratios affect political sustainability of prudent fiscal policies. Rent seeking groups make political decisions - to cooperate (or not) - on the allocation of fiscal budgets...

We examine how U.S. monetary policy affects the international activities of U.S. Banks. We access a rarely studied US bank-level dataset to assess at a quarterly frequency how changes in the U.S. Federal funds rate (before the crisis) and quantitative easing (after the onset of the crisis)...

After the Lehman-Brothers collapse, the stock index has exceeded its pre-Lehman-Brothers peak by 36% in real terms. Seemingly, markets have been demanding more stocks instead of bonds. Yet, instead of observing higher bond rates, paradoxically, bond rates have been persistently negative after...