In HANK, we show that fiscal policy is an appropriate macroeconomic stabilization tool at the ZLB. Fiscal policy achieves the same macroeconomic aggregates and the same welfare as hypothetically unconstrained monetary policy by replicating its transmission mechanism. Consumption taxes and labor...

In this paper I develop a New Keynesian dynamic stochastic general equilibrium model which features three different types of representative agents (THRANK): the poor hand-to- mouth, the wealthy hand-to-mouth and the non-hand-to mouth households. Compared to a full-scale HANK model, this model is...

In HANK, we show that fiscal policy is an appropriate macroeconomic stabilization tool at the ZLB. Fiscal policy achieves the same macroeconomic aggregates and the same welfare as hypothetically unconstrained monetary policy by replicating its transmission mechanism. Consumption taxes and labor...

We show that in a New Keynesian model with household heterogeneity, fiscal policy can be a perfect substitute for monetary policy: three simple conditions for consumption taxes, labor taxes, and the government debt level are sufficient to induce the same consumption and labor supply of each...

Any monetary policy maker using a short-term nominal interest rate as the primary policy tool will have an interest in understanding developments in ex-ante real interest rates. In this paper, several methods for calculating real interest rates for the United Kingdom are explored. These include:...

Negative real short-term rates occur with much higher frequency after the turn of the millennium than in the 40 years prior. This phenomenon corresponds with a significant drop in growth after 2000. In a standard representative agent consumption-based asset pricing framework with external habit,...

We study the joint dynamics of macroeconomic variables, bond yields, and the exchange rate in an empirical two-country New-Keynesian model complemented with a no-arbitrage term structure model. With Canadian and US data, we are able to study the impact of macroeconomic shocks from both countries...

The basic asset pricing equation is adapted to include the effects of unemployment, consumers' expectations, the price level and money supply on money market rates and government bond yields. Expected consumption growth is modelled using European unemployment figures and Eurostat Consumer...

This paper has two parts. The first part will explore and document discrete time affine term structure models in a similar setup as seen in the celebrated papers from Backus, Foresi, Telmer (1998 and 1996) and Backus, Telmer and Wu (1999). However, the paper will concentrate on the multifactor...

There are several widely used benchmark models of the long-term interest rate in quantitative finance. However, these models have yet to incorporate Keynes's valuable insights about interest rate dynamics. The Keynesian approach to interest rate dynamics can be readily incorporated in the...