Most studies of optimal monetary policy under learning rely on optimality conditions derived for the case when agents have rational expectations. In this paper, we derive optimal monetary policy in an economy where the Central Bank knows, and makes active use of, the learning algorithm agents...

This paper studies the steady-state costs of inflation in a general-equilibrium model with real per capita output growth and staggered nominal price and wage contracts. Our analysis shows that trend inflation has important effects on the economy when combined with nominal contracts and real...

While the mainstream long argued that the central bank could use quantitative constraints as a means to controlling the private creation of money, most economists now recognize that the central bank can only set the overnight interest ratewhich has only an indirect impact on the quantity of...

Der Stabilitätspakt hat die Aufgabe, der nationalen Finanzpolitik bei der Verschuldung die Hände zu binden und damit den Euro als vergemeinschaftete Währung abzusichern. Denn ob Geld stabil ist, hängt auch davon ab, wie solide die Staatsfinanzen sind. Den Pakt aufzuweichen wird später einen...

Monetary policy is believed to have a disproportionate effect on firms, depending on their size. Financially constrained firms with limited access to capital markets are expected to be more sensitive to changes in interest rates; this is characteristic of small firms. This paper empirically...

Crises have cleansing effects: Low-quality firms face greater financial shortfalls and invest less than high-quality firms. Public liquidity support preserves the overall production capacity. However, by dampening the cleansing effects, it distorts the quality distribution and reduces the total...

Safe asset shortages can expose the economy to liquidity traps. The nature of these traps is determined by the cyclicality of the bond premium. Selfful filling liquidity traps are associated with a counter-cyclical bond premium. Small issuances of government debt crowd out private debt and...

In this paper, we extend the state-space methodology proposed by Blagrave et al. (2015) and decompose Canadian potential output into trend labour productivity and trend labour input. As in Blagrave et al. (2015), we include output growth and inflation expectations from consensus forecasts to...

Trust in policy makers fluctuates significantly over the cycle and a¤ects the transmission mechanism. Despite this it is absent from the literature. We build a monetary model embedding trust cycles; the latter emerge as an equilibrium phenomenon of a game-theoretic interaction between atomistic...

This paper reexamines the Phillips and Beveridge curves to explain the inflation surge in the U.S. during the 2020s. We argue that the pre-surge consensus regarding both curves requires substantial revision. We propose that the Inverse-L (INV-L) New Keynesian Phillips Curve replace the standard...