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A sticky-information general equilibrium model for policy analysis
Following on Keynes’s desire that economists be as useful as dentists, Lucas (1980) argues that this would amount to the following: “Our task, as I see it, is to write a FORTRAN program that will accept specific economic policy rules as ‘input’ and will generate as ‘output’ statistics describing the ...
Under what conditions can inflation targeting be adopted? The experience of emerging markets
Inflation targeting has become an increasingly popular monetary policy strategy, with 21 countries (8 industrial and 13 emerging market economies) targeting inflation and others considering following in their footsteps. Numerous studies of inflation targeting in industrial countries have been conducted, ...
Capital flow management with multiple instruments
Emerging markets (EMs) are affected by a global financial cycle originating in developed economies (Rey 2013). An increase in risk appetite of developed economies perhaps spurred by easy monetary policy leads to a surge in capital flows to EMs. These foreign capital flows especially foreign portfolio ...
Bernanke's no-arbitrage argument revisited: can open market operations in real assets eliminate the liquidity trap?
This paper looks back on the professional consensus about monetary policy at the zero bound prior to the 2008 crisis and proposes a calibrated model that provides one interpretation to explain why it was somewhat off base. The general consensus in the economics profession in the late 1990s when Japan ...
Quantitative easing and financial stability
Since the global financial crisis of 2008–09 many of the leading central banks have dramatically increased the size of their balance sheets and have shifted the composition of the assets that they hold toward larger shares of longer-term securities (as well as toward assets that are riskier in other ...
Trilemmas and tradeoffs: living with financial globalization
This paper evaluates the capacity of emerging market economies (EMEs) to moderate the domestic impact of global financial and monetary forces through their own monetary policies. I present the case that those EMEs able to exploit a flexible exchange rate are far better positioned than those that devote ...
Monetary policy and dutch disease: the case of price and wage rigidity
From a theoretical point of view and as we will show the presence of both price and wage rigidities implies that to the extent that fiscal policy is unresponsive to shocks full price stability is not optimal. In this paper we study optimal monetary and exchange rate policy in a small open economy with ...
Nonlinear effects of the chilean fiscal policy
En Chile, la literatura empírica que ha estudiado los efectos de la política fiscal y los multiplicadores fiscales utilizando modelos lineales de vectores autorregresivos encuentra resultados dispares. El presente documento aporta un nuevo elemento a este debate estudiando si el estado en el que se ...
Overoptimism boom-bust cycles and monetary policy in small open economies
In the 1990s several emerging market economies such as Chile Mexico and a number of southeast Asian countries displayed episodes of peaking growth rates combined with increasing current account deficits and appreciating currencies which ended with abrupt reversions in capital flows and recessions. In ...
International aspects of the zero lower bound constraint
Large negative aggregate demand shocks can drive down an economy’s equilibrium real interest rate and if the central bank is committed to stabilizing inflation monetary policy may be hampered by the zero lower bound on nominal interest rates –the economy may be in a 'liquidity trap.' The policy dilemma ...