This paper develops a DSGE model which is shown to explain variation in the nominal and real term structure as well as inflation surveys and four macrovariables for the UK economy. The model is estimated based on a third-order approximation to allow for time-varying term premia. We find a fall...

Euler equations are the key link between monetary policy and the real economy in NK models. Under separable preferences, they fail to match interest rates. Non-separability between leisure and consumption significantly improves their fit and reliability for studying monetary policy.

We challenge the view that the negative correlation between the Federal Funds and the Euler equation interest rate is linked to monetary policy. Using Monte Carlo experiments, we show that the negative correlation can be explained by risk premium disturbances.

Traditional approaches to separate the underlying trend of potential output from cyclical developments mostly rely on the concept of nonaccelerating inflation output and are thus unable to detect upswings caused by the financial cycle, which often appear to be unsustainable in the long run. In...

This paper offers three analyses of Japan's macroeconomic experience during the post-1990 period. First, we analyze various facets of deflation during the period, arguing that the deflation of general prices has by no means been a major factor for the stagnating economy. In contrast, the...

We provide evidence on the transmission of monetary policy shocks in a setting with both economic and financial variables. We first show that shocks identified using high frequency surprises around policy announcements as external instruments produce responses in output and inflation that are...

This paper analyses the consequences of the existence of financial frictions and of a banking system on business cycles, in a new Keynesian macroeconomics model. We contrast our conclusions with those obtained in two other existing frameworks (namely the canonical nns model of Woodford, [2003]...

This paper provides a survey of business cycle facts, updated to take account of recent data. Emphasis is given to the Great Recession, which was unlike most other postwar recessions in the United States in being driven by deleveraging and financial market factors. We document how recessions...

This paper reports on recent research showing that the severe recession of 2007-2009 and the weak recovery have been due to poor economic policies and the failure to implement good policies during the past decade. Monetary policy, fiscal policy, and regulatory policy became more discretionary,...

Are exogenous shocks to lending spreads in corporate credit markets a substantial source of macroeconomic fluctuations? An alternative explanation of the data is that borrowing costs respond endogenously to expectations of future default, driven by macroeconomic shocks. We investigate by...