We explore the macroeconomic effects of a compression in the long-term bond yield spread within the context of the Great Recession of 2007–09 via a time-varying parameter structural VAR model. We identify a “pure” spread shock defined as a shock that leaves the policy rate unchanged, which...

This paper estimates a monetary DSGE model with learning introduced from the primitive assumptions. The model nests infinite-horizon learning and features, such as habit formation in consumption and inflation indexation, that are essential for the model fit under rational expectations. I...

This paper studies when and by how much the Federal Reserve and the European Central Bank change their target interest rates. I develop a new non-linear bivariate framework, which allows for elaborate dynamics and potential interdependence between the two countries, as opposed to linear feedback...

Bank reserves in the United States increased dramatically at the end of 2008. Subsequent asset purchase programs in 2009 and 2011 more than doubled the quantity of reserves outstanding. We study the cross-sectional distribution of reserves in that period, and the relationship between holdings of...

The main contribution of this paper is to introduce a funding liquidity component `a la Morris and Shin (2009) in a stresstesting framework. As a result, funding liquidity risk arises as an endogenous outcome of the interactions between market liquidity and solvency risks, and banks’ liquidity...

The financial crisis has ignited a debate about the appropriate objectives and the governance structure of central banks. We use novel survey data to investigate the relation between these traits and banking system stability, focusing in particular on their role in micro-prudential supervision....

We examine policy rate recommendations of the Bank of Canada’s Governing Council (GC) and its shadow, the C.D. Howe Institute’s Monetary Policy Council (MPC). Individual recommendations of the MPC are observed but not those of the GC. Differences in the two committees’ recommendations are...

We challenge the widely held belief that New Keynesian models cannot predict optimal positive inflation rates. In fact, interest rates are justified by the Phelps argument that monetary financing can alleviate the burden of distortionary taxation. We obtain this result because, in contrast with...

A two-country general equilibrium model with large wage setters is developed to investigate the welfare implications of moving from a flexible exchange rate regime to a monetary union. The paper shows that the currency regime not only affects the central bank’s incentive to improve the terms...

Over the past few years, the Federal Reserve’s use of unconventional monetary policy tools has received a vast amount of public attention, from discussing how these asset purchases have put downward pressure on longer-term interest rates and thus supported economic activity to evaluating the...