What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under which will it have the opposite effects? The authors answer these questions in a general class...

We explore the role of monetary policy in the aftermath of a financial crisis. We develop a small open economy model with limited participation of households in a financial intermediary that provides liquidity to satisfy firms' working capital needs. Firms require two forms of working capital:...

What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under what conditions will a cut have the opposite effects? We answer these questions in a general...

We explore a hypothesis about the take-off in inflation that occurred in the early 1970s. According to the expectations trap hypothesis, the Fed was pushed into producing the high inflation out of a fear of violating the public's inflation expectations. We compare this hypothesis with the...

This article explores a hypothesis about the take-off in inflation in the early 1970s. According to the expectations trap hypothesis, the Fed was driven to high money growth by a fear of violating the expectations of high inflation that existed at the time. The authors argue that this hypothesis...

The authors examine the inflation take-off of the early 1970s in terms of the expectations trap hypothesis, according to which fear of violating the public’s inflation expectations pushed the Fed into producing high inflation. This interpretation is compared with the Phillips curve hypothesis,...