We introduce Large Scale Asset Purchases (LSAPs) in a New-Keynesian DSGE model that features distinct mortgage and corporate loan markets. We show that following a significant disruption of financial intermediation, central-bank purchases of mortgage-backed securities (MBS) are uniformly less...

We analyze the conditions of emergence of a twin banking and sovereign debt crisis within a monetary union in which: (i) the central bank is not allowed to provide direct financial support to stressed member states or to play the role of lender of last resort in sovereign bond markets, and (ii)...

Using a New Keynesian model subject to misspecifications, we examine the accountability issue in a framework of delegation where government and private agents are uncertain about the central bank’s preference for model robustness. We show that, in the benchmark case of full transparency, the...

The mainstream inflation-targeting literature makes the strong assumption that the central bank can exactly target the interest rate which affects investment and consumption decisions and hence the money supply plays no role in the monetary policy strategy. This assumption is equivalent to...

Much attention has been paid to models of currency crisis with self-fulfilling features and the concept of multiple equilibria developed in the 1990s. They aim at explaining currency crisis without apparent fundamental disequilibrium. They are also useful to render account for currency crisis...

In a model with imperfect money, credit and reserve markets, we examine if an inflation-targeting central bank using the funds rate operating procedure to indirectly control market interest rates also needs a monetary aggregate as policy instrument. We show that if private agents use information...

Several recent papers argue that contracts provide reference points that affect ex post behavior. We test this hypothesis in a canonical buyer-seller relationship with renegotiation. Our paper provides causal experimental evidence that an initial contract has a highly significant and...

We present an international trade model with multiproduct firms. Firms are heterogeneously endowed with two types of capabilities that jointly determine the trade-off within firms between managing a large portfolio of products and producing at low marginal cost. The model can explain many of the...

This paper reports data from a laboratory experiment on two-period moral hazard problems. The findings corroborate the contract-theoretic insight that even though the periods are technologically unrelated, due to incentive considerations principals can benefit from offering long-term contracts...