In a standard open-economy New Keynesian model, the effective lower bound causes anomalies: output and terms of trade respond to a supply shock in the opposite direction compared to normal times. We introduce a tractable framework to accommodate for unconventional monetary policy. In our model,...

Monetary policy affects the real economy in part through its effects on financial institutions. High frequency event studies show the introduction of unconventional monetary policy in the winter of 2008-09 had a strong, beneficial impact on banks and especially on life insurance companies. I...

Analysis of quantitative easing (QE) typically focus on the recent past studying the policy's effectiveness during a financial crisis when nominal interest rates are zero. This paper examines instead the usefulness of QE in a future fiscal crisis, modeled as a situation where the fiscal outlook...

Motivated by the recent experience of the U.S. and the Eurozone, we describe the quantitative properties of a New Keynesian model with a zero lower bound (ZLB) on nominal interest rates, explicitly accounting for the nonlinearities that the bound brings. Besides showing how such a model can be...

This paper examines how supply-side policies may play a role in fighting a low aggregate demand that traps an economy at the zero lower bound (ZLB) of nominal interest rates. Future increases in productivity or reductions in mark-ups triggered by supply-side policies generate a wealth effect...

What are the effects of monetary policy on exchange rates? And have unconventional monetary policies changed the way monetary policy is transmitted to international financial markets? According to conventional wisdom, expansionary monetary policy shocks in a country lead to that country's...

We develop a structural DSGE model to systematically study the principal tools of unconventional monetary policy – quantitative easing (QE), forward guidance, and negative interest rate policy (NIRP) – as well as the interactions between them. To generate the same output response, the...

This paper reviews the rationale for quantitative easing when central bank policy rates reach near zero levels in light of recent announcements regarding direct asset purchases by the Bank of England, the Bank of Japan, the U.S. Federal Reserve and the European Central Bank. Empirical evidence...

We propose a novel mechanism, “financial dampening,” whereby loan retrenchment by banks attenuates the effectiveness of monetary policy. The theory unifies an endogenous supply of illiquid local loans and risk-sharing among subsidiaries of bank holding companies (BHCs). We derive an...

We propose a novel identification strategy of imposing sign restrictions directly on the impulse responses of a large set of variables in a Bayesian factor-augmented vector autoregression. We conceptualize and formalize conditions under which every additional sign restriction imposed can be...