We re-examine the relationship between monetary policy and financial stability in a setting that allows for nonlinear, time-varying relationships between monetary policy, financial stability, and macroeconomic outcomes. Using novel machine-learning techniques, we estimate a flexible "nonlinear...

We present an incomplete markets model to understand the costs and benefits of increasing government debt when an increased demand for safety pushes the natural rate of interest below zero. A higher demand for safe assets causes the ZLB to bind, increasing unemployment. Higher government debt...

We present an incomplete markets model to understand the costs and benefits of increasing government debt in a low interest rate environment. Higher risk increases the demand for safe assets, lowering the natural rate of interest below zero, constraining monetary policy at the zero lower bound,...

We study optimal monetary policy in a heterogeneous agent new Keynesian economy. A utilitarian planner seeks to reduce consumption inequality, in addition to stabilizing output gaps and inflation. The planner does so both by reducing income risk faced by households, and by reducing the...

Does market incompleteness radically transform the properties of monetary economies? Using an analytically tractable heterogeneous agent New Keynesian (HANK) model, we show that whether incomplete markets resolve "policy paradoxes" in the representative agent New Keynesian model (RANK) depends...