We show that firms' nominal required returns to capital (i.e., their discount rates) are sticky with respect to expected inflation. Such nominally sticky discount rates imply that increases in expected inflation directly lower firms' real discount rates and thereby raise real investment. We...

Existing high-frequency monetary policy shocks explain surprisingly little variation in stock prices and exchange rates around FOMC announcements. Further, both of these asset classes display heightened volatility relative to non-announcement times. We use a heteroskedasticity-based procedure to...

This paper presents a dynamic stochastic general-equilibrium model with a single friction in all markets: sticky information. In this economy, agents are inattentive because of costs of acquiring, absorbing and processing information, so that the actions of consumers, workers and firms are slow...

This paper characterizes the transmission mechanism of monetary shocks across countries of the euro area, documents how this mechanism has changed with the introduction of the euro, and explores some potential explanations. The factor-augmented VAR (FAVAR) framework used is sufficiently rich to...

With many emerging market currencies tied to the U.S. dollar either implicitly or explicitly, movements in the exchange values of the currencies of major countries have the potential to influence the competitive position of many developing countries. According to some analysts, establishing...

This paper explores several issues concerning a possible zero lower bound (ZLB) including its theoretical rationale; the magnitude of effects of low sustained inflation on real interest rates; the validity of analyzing monetary policy in models with no monetary variables; and the dynamic...

We develop a two-country model in which currency and bond markets are populated by different investor clienteles, and segmentation is partly overcome by global arbitrageurs with limited capital. Our model accounts for the empirically documented violations of Uncovered Interest Parity (UIP) and...

Researchers, using the survey conducted by Money Market Services, Inc., have found that the anticipated component in the Federal Reserve's weekly money supply announcement is negatively correlated with the post- announcement change in market yields. We prove that eliminating a (downward) bias in...

Huizinga and Mishkin (1986) have recently proposed a simple method for testing whether monetary policy regime changes have affected the ex-ante real rate of interest. This paper shows that care must be taken in choosing the set of variables on which to project the ex-post real rate if inferences...

This paper uses a novel teat to see whether the Herse (1985) and Woo (1985) models are consistent with the variability of the deutschemark - dollar exchange rate 1974-1984. The answer, perhaps surprisingly, is yes. Both models, however, explain the month to month variability as resulting in a...