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...

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

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...

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...

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...

Structural VAR studies disagree with narrative accounts about the history of monetary policy disturbances. We investigate whether employing the narrative monetary shock account as a proxy variable in a VAR model aligns both shock series. We quantify the extent to which the disagreement still...

Yes, indeed; at least for macroeconomic policy interaction. We examine a Neo-Classical economy and provide the conditions for policy arrangements to successfully stabilize the economy when agents have either rational or adaptive expectations. For a contemporaneous-data monetary policy rule, the...

Survey data on inflation expectations show that: (i) private sector forecasts and central bank forecasts are not fully aligned and (ii) private sector forecasters disagree about inflation expectations. To reconcile these two facts we introduce dispersed information in a New Keynesian model,...

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...