We experimentally investigate the effect of a central bank buying bonds for cash in a quantitative easing (QE) operation. In our experiment, the bonds are perfect substitutes for cash and have a constant fundamental value which is not affected by QE in the rational expectations equilibrium. We...

Galí (2014) showed that a monetary policy rule that raises interest rates in response to bubbles can paradoxically lead to larger bubbles. This comment shows that a central bank that wants to dampen bubbles can always do so by raising interest rates aggressively enough. This result is different...

We consider optimal monetary policy in a model that integrates credit frictions in the standard New Keynesian model with sticky prices and wages as well as adjustment costs of capital. Different from traditional models with credit frictions such as Carlstrom and Fuerst (1998), the model is able...