Price setting has become more flexible following a string of large adverse shocks (Covid-19, the Ukraine War). We argue that a shift to a high-uncertainty regime incentivizes firms to invest in their ability to adjust prices. We formalize this idea in a general equilibrium model with endogenous...

We analyze the influence of monetary policy on firms' extensive margin and productivity. Our empirical evidence for the U.S. based on a macro-financial SVAR suggests that expansionary monetary policy shocks stimulate corporate profits, reduce firm exit and increase firm entry. In the medium run,...

We analyze the influence of monetary policy on firms' extensive margin and productivity. Our empirical evidence for the U.S. based on a macro-financial SVAR suggests that expansionary monetary policy shocks stimulate corporate profits, reduce firm exit and increase firm entry. In the medium run,...

I propose a new term structure model for euro area real and nominal interest rates which explicitly incorporates a time-varying lower bound for nominal interest rates. Results suggest that the lower bound is of importance in structural analyses implying time-varying impulse responses of yield...

Using micro price data underlying the Harmonized Index of Consumer Prices in France, Germany and Italy, we estimate relative price trends over the product life cycle and show that minimizing price and mark-up distortions in the presence of these trends requires targeting a significantly positive...

Since the 2001 recession, average core inflation has been below the Federal Reserve's 2% target. This deflationary bias is a predictable consequence of a symmetric monetary policy strategy that fails to recognize the risk of encountering the zero-lower-bound. An asymmetric rule according to...

We show that if business cycles are driven by financial shocks, the interplay between the effective lower bound (ELB) and the costs of external financing can generate an additional supply-side channel, which causes a disconnect between inflation and output. In normal times, factor costs dominate...

Central banks wish to avoid self-fulfilling fluctuations. Monetary rules with a unit response to real rates achieve this under the weakest possible assumptions about the behaviour of households and firms. They are robust to household heterogeneity, hand-to-mouth consumers, non-rational...

A feature of recent monetary policy asset purchase programmes is the reinvestment policy: the central bank announces to keep the overall volume of assets on its balance sheet constant for some time. In this paper, we systematically assess the macroeconomic effects of such reinvestment policies....

We study the impact of market incompleteness and bounded rationality on the effectiveness of make-up strategies. To do so, we simulate a heterogeneous-agent New Keynesian (HANK) model with reflective expectations and an occasionally-binding effective lower bound (ELB) on the policy rate. Our...