We reconsider the role of financial intermediaries in monetary economics, and explore the hypothesis that the financial intermediary sector is the engine that drives the financial cycle through fluctuations in the price of risk. In this framework, balance sheet quantities emerge as a key...

This chapter examines the concept of inflation persistence in macroeconomic theory. It begins by defining persistence -- emphasizing the difference between reduced-form and structural persistence. It then examines a number of empirical measures of reduced-form persistence, considering the...

Rational inattention theory is economic theory that recognizes that people have finite information-processing capacity, in the sense of Shannon and engineering information theory. This approach is still in the early stages of development, but it promises to provide a unified explanation for some...

We develop a canonical framework to think about credit market frictions and aggregate economic activity in the context of the current crisis. We use the framework to address two issues in particular: first, how disruptions in financial intermediation can induce a crisis that affects real...

The purpose of this paper is to discuss some of the models used in New Monetarist Economics, which is our label for a body of recent work on money, banking, payments systems, asset markets, and related topics. A key principle in New Monetarism is that solid microfoundations are critical for...

This paper focuses on simple normative rules for monetary policy that central banks can use to guide their interest rate decisions. Such rules were first derived from research on empirical monetary models with rational expectations and sticky prices built in the 1970s and 1980s. During the past...

This chapter reviews the theory of optimal monetary stabilization policy in New Keynesian models, with particular emphasis on developments since the treatment of this topic in Woodford (2003). The primary emphasis of the chapter is on methods of analysis that are useful in this area, rather than...

Our chapter reviews positive and normative issues in the interaction between monetary and fiscal policy, with an emphasis on how views on policy coordination have changed over the last 25 five years. On the positive side, noncooperative games between a government and its central bank have given...

The last decade has seen a burst of micro price studies. Many studies analyze data underlying national CPIs and PPIs. Others focus on more granular subnational grocery store data. We review these studies with an eye toward the role of price setting in business cycles. We summarize with ten...

This paper surveys the research in the past decade on imperfect information models of aggregate supply and the Phillips curve. This new work has emphasized that information is dispersed and disseminates slowly across a population of agents who strategically interact in their use of information....