Recently, central banks around the world have relied mostly on nontraditional policy tools to stimulate economic activity. A distinctive example is the expansion of the size of central bank balance sheets through the purchase of long-term government securities. In this paper we analyze the...

Recently, central banks around the world have relied mostly on nontraditional policy tools to stimulate economic activity. A distinctive example is the expansion of the size of central bank balance sheets through the purchase of long-term government securities. In this paper we analyze the...

We construct a monetary economy in which agents face aggregate demand shocks and heterogeneous idiosyncratic preference shocks. We show that, even when the Friedman rule is the best interest rate policy the central bank can implement, not all agents are satiated at the zero lower bound and...

We construct a dynamic general equilibrium model where agents use nominal government bonds as collateral in secured lending arrangements. If the collateral constraint binds, agents price in a liquidity premium on bonds that lowers the real rate on bonds. In equilibrium, the price level is...