resolving new keynesian anomalies with wealth in the utility function at the zero lower bound the new keynesian model predicts that output and inflation collapse to implausibly low levels and that government spending and forward guidance have implausibly large effects to resolve these anomalies we introduce wealth into the utility function the justification is that wealth is a marker of social status and people value status since people partly save to accrue social status the euler equation is modified as a result when the marginal utility of wealth is sufficiently large the dynamical system representing the zero lower bound equilibrium transforms from a saddle to a source which resolves all the anomalies

the inexorable and mysterious tradeoff between inflation and unemployment this paper discusses the short run tradeoff between inflation and unemployment although this tradeoff remains a necessary building block of business cycle theory economists have yet to provide a completely satisfactory explanation for it according to the consensus view among central bankers and monetary economists a contractionary monetary shock raises unemployment at least temporarily and leads to a delayed and gradual fall in inflation standard dynamic models of price adjustment however cannot explain this pattern of responses reconciling the consensus view about the effects of monetary policy with models of price adjustment remains an outstanding puzzle for business cycle theorists several years ago i gave myself a peculiar assignment i decided to try to summarise all of economics in ten simply stated principles the purpose of this task was to introduce students to the economic way of thinking in the first chapter of my textbook principles of economics i figured if god could boil all of moral philosophy down to ten commandments i should be able to do much the same with economic science most of the ten principles i chose were microeconomic and hard to argue with they involved the importance of tradeoffs marginal analysis the benefits of trade market efficiency market failure and so on i allocated the last three principles to macroeconomics the first of these was a country s standard of living depends on its ability to produce goods and services which i viewed as the foundation of all growth theory the second was prices rise when the government prints too much money which i took to be the essence of classical monetary theory the last of my ten principles is the subject of today s lecture society faces a short run tradeoff between inflation and unemployment perhaps not surprisingly this statement turned out to be controversial when my publisher sent out the manuscript for review a few readers objected

the forward fiscal guidance puzzle and a resolution abstract the forward fiscal guidance puzzle pertains to new keynesian models when monetary policy is temporarily caught in a liquidity trap 1 expected future fiscal shocks have an unbelievably large effect on current inflation and 2 the effect on current inflation is larger the further out is the shock expected to occur we illustrate the problem analytically then we use blue chip inflation forecasts to argue that the effects on inflation expectations should be small and finally we analyze two potential resolutions to the puzzle the first is the fiscal theory of the price level in a calibrated model with price inertia investment and long term debt we show that the fiscal theory resolves the second aspect of the puzzle but certainly not the first in our preferred resolution we return to a ricardian fiscal policy and we assume that the probability of a return to the taylor rule depends on the rate of inflation the model s predictions are in line with the evidence from the blue chip forecasts this article is part of a special issue entitled fiscal and monetary policies

optimal fiscal and monetary policy with occasionally binding zero bound constraints abstract this paper studies optimal fiscal and monetary policy when the nominal interest rate is subject to the zero lower bound zlb constraint in a stochastic new keynesian economy in the baseline model calibrated to match key features of the u s economy it is optimal for the government to increase its spending when at the zlb in the stochastic environment by about 60 percent more than it would in the deterministic environment the presence of uncertainty creates a unique time consistency problem if the steady state is inefficient although access to government spending policy increases welfare in the face of a large deflationary shock it decreases welfare during normal times as the government reduces the nominal interest rate less aggressively before reaching the zlb

endogenizing the median voter public choice goes to school this paper investigates implications of the relationship between voter self selection and the behavior of politicians voter self selection arises in elections because only a portion of eligible voters actually vote it is likely to be more pronounced whenever the implied net benefits from a given electoral choice are disproportionately distributed across voters public choice theory predicts that incumbent officials will manipulate this self election pursuant to the maximization of their personal objective functions this paper provides evidence from school bond elections that politicians influence voter self selection via manipulation of election parameters

are supply shocks contractionary at the zlb evidence from utilization adjusted tfp data abstract the basic new keynesian model predicts that positive supply shocks are less expansionary at the zero lower bound zlb compared to periods of active monetary policy we test this prediction empirically using fernald s 2014 utilization adjusted total factor productivity series which we take as a measure of exogenous productivity in contrast to the predictions of the model positive productivity shocks are estimated to be more expansionary at the zlb compared to normal times we find that there is no significant difference in the response of expected inflation to a productivity shock at the zlb compared to normal times

attenuating the forward guidance puzzle implications for optimal monetary policy abstract we examine the implications of less powerful forward guidance for optimal policy using a sticky price model with an effective lower bound elb on nominal interest rates as well as a discounted euler equation and a discounted phillips curve when the private sector agents discount future economic conditions more in making their decisions today a future rate cut becomes less effective in stimulating current economic activity under a wide range of plausible degrees of discounting it is optimal for the central bank to compensate for the reduced effect of a future rate cut by keeping the policy rate at the elb for longer

a welfare based analysis of international monetary policy spillovers at the zero lower bound we study the welfare effects of international monetary policy spillovers at the zero lower bound focusing on the effects of forward guidance in a large economy foreign on its smaller trading partner home in scenarios motivated by the global financial crisis we find that foreign forward guidance has an overall prosper thy neighbor effect on the home economy as long as it increases foreign welfare this finding holds under alternative assumptions about exchange rate pass through or the degree of international financial integration however foreign forward guidance may worsen the trade off between the stabilization objectives of home monetary policy

uncertain policy promises abstract we develop a general method for analyzing the effects of macroeconomic policy promises about which the private sector is uncertain we illustrate the method in two applications to a central bank s forward guidance about the path for its policy rate we demonstrate that uncertainty about forward guidance resulting from its potential to be imperfectly credible makes it much less powerful than in textbook models in an application to the fomc s threshold based guidance we show that increasing the precision of the conditions under which the policy rate lifts off from the zero bound requires a lower unemployment threshold to deliver a given amount of stimulus

the new keynesian liquidity trap abstract many new keynesian models produce a deep recession with deflation at the zero bound these models also make unusual policy predictions useless government spending technical regress capital destruction and forward guidance can raise output moreover these predictions are larger as prices become less sticky and as changes are expected further in the future i show that these predictions are strongly affected by equilibrium selection for the same interest rate path equilibria that bound initial jumps predict mild inflation small output variation negative multipliers small effects of far off expectations and a smooth frictionless limit fiscal policy considerations suggest the latter equilibria

pegging the interest rate on bank reserves a resolution of new keynesian puzzles and paradoxes abstract introducing bank reserves or money into the basic new keynesian nk model offers a resolution of nk puzzles and paradoxes the resulting models deliver local equilibrium determinacy under an exogenous interest rate on reserves and an exogenous nominal stock of reserves even for an arbitrarily small monetary friction this leads to a resolution of the forward guidance puzzle the fiscal multiplier puzzle and the paradox of flexibility as the monetary friction becomes vanishingly small the models converge to the basic nk model and serve to select a particular equilibrium of that model which also offers a resolution of the paradox of toil

inflation and output in new keynesian models with a transient interest rate peg a familiar result in the canonical dynamic new keynesian dnk model is that policymakers constrained by the zero bound can improve outcomes by promising to keep rates low after the zero bound is not binding we examine a general class of interest rate pegs in a variety of dnk models standard versions of the model produce counterintuitive reversals where the effect of the interest rate peg can switch from highly expansionary to highly contractionary for modest changes in the length of the interest rate peg this unusual behavior does not arise in sticky information models of the phillips curve

estimating dsge models with zero interest rate policy we propose estimating dsge models in which the central bank fixes the policy rate for an extended period of time and apply our approach to estimate expected durations of the federal reserve s zero interest rate policy since 2009 we find a large increase in expected duration in 2011 with the move to calendar based guidance and a decrease in 2013 with the taper tantrum these changes are identified by the influence of expected duration on output inflation and interest rates at longer maturities the structural model measures the severity of the zero lower bound constraint and the effects of unconventional policy

forward guidance and the role of central bank credibility under heterogeneous beliefs abstract this paper studies the macroeconomic effects of central bank forward guidance when central bank credibility is endogenous we take a stylized new keynesian model with an occasionally binding effective lower bound constraint on nominal interest rates and heterogeneous and boundedly rational households central bank forecasts follow a bivariate var not taking into account the time variation in the distribution of aggregate expectations in this framework we extend the central bank s toolkit to allow for the publication of its own forecasts delphic guidance and the commitment to a future path of the nominal interest rate odyssean guidance we find that both delphic and odyssean forward guidance increase the likelihood of recovery from a liquidity trap even though odyssean guidance alone appears more powerful in inducing recovery we find it to increase ex post macroeconomic volatility and thus reduce welfare

monetary policy for inattentive economies we offer a contribution to the analysis of optimal monetary policy we begin with a critical assessment of the existing literature arguing that most work is based on implausible models of inflation output dynamics we then suggest that this problem may be solved with some recent behavioral models which assume that price setters are slow to incorporate macroeconomic information into the prices they set a specific such model is developed and used to derive optimal policy in response to shocks to productivity and aggregate demand optimal policy is price level targeting base drift in the price level which is implicit in the inflation targeting regimes currently used in many central banks is not desirable in this model when shocks to desired markups are added optimal policy is flexible targeting of the price level that is the central bank should allow the price level to deviate from its target for a while in response to these supply shocks but it should eventually return the price level to its target path optimal policy can also be described as an elastic price standard the central bank allows the price level to deviate from its target when output is expected to deviate from its natural rate

valuing future risks to life environmental policies that alter future mortality rates may affect both current and future generations this paper examines willingness to pay for future risk reductions from the perspective of the current generation the life cycle consumption saving model implies that an individual discounts future risks to himself at the consumption rate of interest if capital markets are perfect the consumption rate equals the market rate of interest otherwise the consumption rate exceeds the market rate and numerical results suggest that the implied discount factor may be substantial the overlapping generations model implies that a member of the current generation discounts the value of risks to future generations at the rate at which current consumption is substituted for a bequest

monetary policy announcements and expectations evidence from german firms abstract we assess empirically whether monetary policy announcements impact firm expectations two features of our data set are key first we rely on a survey of production and price expectations of german firms that is expectations of actual price setters second we observe the day on which firms submit their answers to the survey we compare the responses of firms before and after monetary policy surprises and obtain two results first firm expectations respond to policy surprises second the response becomes weaker as the surprise becomes bigger a contractionary surprise of moderate size reduces firm expectations while a moderate expansionary surprise raises them large surprises both negative and positive fail to alter expectations consistent with this result we find that many of the ecb s announcements of non conventional policies did not affect expectations significantly overall our results are consistent with the notion that monetary policy surprises generate an information effect which is endogenous to the size of the policy surprise

new keynesian dynamics in a low interest rate environment recent research has found that the dynamic properties of the new keynesian model are unorthodox when the nominal interest rate is zero improvements in technology and reductions in the labor tax rate lower economic activity and the size of the government purchase output multiplier is very large this paper provides evidence that these results are not empirically relevant we show that a prototypical new keynesian model fit to japanese data exhibits orthodox dynamics during japan s episode with zero interest rates we then demonstrate that this specification is more consistent with outcomes in japan than alternative specifications that have unorthodox properties

fiscal multipliers under an interest rate peg of deterministic versus stochastic duration this paper revisits the size of the fiscal multiplier the experiment is a fiscal expansion under the assumption of a pegged nominal rate of interest we demonstrate that a quantitatively important issue is the articulation of the exit from the policy experiment if the monetary fiscal expansion is stochastic with a mean duration of t periods the fiscal multiplier can be unboundedly large however if the monetary fiscal expansion is for a fixed t periods the multiplier is much smaller our explanation rests on a jensen s inequality type argument the deterministic multiplier is convex in duration and the stochastic multiplier is a weighted average of the deterministic multipliers the quantitative difference in the two multipliers also arises in a model with capital and in the baseline nonlinear model however the differences between the two is less pronounced in the nonlinear models

estimating the effects of forward guidance in rational expectations models abstract simulations of forward guidance in rational expectations models should be assessed using the modest policy interventions framework introduced by eric leeper and tao zha that is the estimated effects of a policy intervention should be considered reliable only if that intervention is unlikely to trigger a revision in private sector beliefs about the way that monetary policy will be conducted i show how to constrain simulations of forward guidance to ensure that they are regarded as modest policy interventions and illustrate the technique using a medium scale dsge model estimated on us data i find that many experiments that generate the large responses of macroeconomic variables deemed implausible by many economists the so called forward guidance puzzle are not modest policy interventions those experiments should therefore be treated with caution since they may prompt agents to believe that there has been a change in the monetary policy regime that is not accounted for within the model more reliable results can be obtained by constraining the experiment to be a modest policy intervention in the cases i study the quantitative effects on macroeconomic variables are more plausible when this constraint is imposed

do households prefer small school districts a natural experiment author affiliation h spencer banzhaf hsbanzhaf gsu edugarima bhalla gbhalla live unc edu acknowledgment we thank rajashri chakrabarti rob fleck jason fletcher john pepper jesse rothstein holger sieg david sjoquist todd sorensen christiana stoddard randall walsh anonymous referees and participants of a session at the 2006 southern economic association meetings and seminars at montana state university and the university of pittsburgh for valuable comments 1 introductionperennial discontent with the quality of public education in the united states is a constant motivation for new educational reforms one potential reform is to break up large urban school districts into smaller districts 1 this proposal emerges from two lines of logic first large districts may suffer from substantial diseconomies of scale a recent review of the evidence concludes that diseconomies may emerge in districts with as few as 15 000 students andrews duncombe and yinger 2002 see also barrow and rouse 2004 and duncombe miner and ruggiero 2005 by comparison the urban districts of new york city los angeles and chicago handle as many as 1 1 million 727 000 and 421 000 students respectively a second line of logic is that breaking up large school districts would provide more choice for households in particular the smaller districts may be differentiated horizontally with some emphasizing math others reading others specific extra curricular courses and so forth since smaller districts can respond better to parental input these differences can reflect local tastes additionally the new districts would have to compete with one another for students enhancing their incentive to improve their performance borland and howsen 1992 hoxby 2000 hanushek and rivkin 2003 sandstrom and bergstrom 2005 these reforms are subject to a market test following the logic of tiebout 1956 households should respond to exogenous changes in public goods by voting with their feet that is moving into improving communities and bidding up prices 2 consequently if households perceive that decentralizing large school districts is desirable for any of these reasons we would expect the ceteris paribus demand for housing to increase in school districts undergoing such reforms relative to nearby substitutes this article examines just such a market test studying the effect on local real estate markets surrounding the april 2000 breakup of the los angeles unified school district lausd into 11 subdistricts this breakup was only partial insofar as official authority remained vested in a single school board nevertheless the breakup delegated substantial power to a more local level creating 11 new superintendents and devolving authority over educational policy and curricula to the new subdistricts we employ a difference in differences hedonic methodology comparing changes in real estate prices before and after the breakup announcement within the lausd area to price changes in nearby districts our approach has three distinct advantages first the october 1999 announcement of the breakup plan was abrupt and surprising and was swiftly followed by official passage in april 2000 because the announcement was so abrupt and so well covered by the media we have an excellent proxy for households expectations and it is expectations after all that govern market behavior our proxies for expectations are based on the announcement date the implementation date and in some models an index of newspaper coverage second few of the benefits of the reform would be likely to spill over into other school districts making the lausd border a sharp boundary defining relevant control groups third the lausd area is not coextensive with the city of los angeles but rather includes some 24 cities this implies that any other potentially confounding political events over the period would affect real estate markets in only a portion of the lausd rather than the whole area a possibility that we can test

the limits of forward guidance abstract the viability of forward guidance as a monetary policy tool depends on the horizon over which it can be communicated and its influence on expectations over that horizon this paper develops and estimates a model of imperfect central bank communications and uses it to measure how effectively the fed has managed expectations about future interest rates and the influence of its communications on macroeconomic outcomes standard models assume central banks have perfect control over expectations about the policy rate up to an arbitrarily long horizon and this is the source of the so called forward guidance puzzle our estimated model suggests that the fed has limited ability to affect expectations at horizons that are sufficiently long to give rise to the forward guidance puzzle additionally imperfect communication has a significant impact on the propagation of forward guidance finally we develop a novel decomposition of the response of the economy to forward guidance the decomposition shows that empirically plausible imperfect forward guidance has a quantitatively important role bringing forward the effects of future rate changes and that poor communications have been a source of macroeconomic volatility

high frequency identification of monetary non neutrality the information effect we present estimates of monetary non neutrality based on evidence from high frequency responses of real interest rates expected inflation and expected output growth our identifying assumption is that unexpected changes in interest rates in a 30 minute window surrounding scheduled federal reserve announcements arise from news about monetary policy in response to an interest rate hike nominal and real interest rates increase roughly one for one several years out into the term structure while the response of expected inflation is small at the same time forecasts about output growth also increase the opposite of what standard models imply about a monetary tightening to explain these facts we build a model in which fed announcements affect beliefs not only about monetary policy but also about other economic fundamentals our model implies that these information effects play an important role in the overall causal effect of monetary policy shocks on output

labor force participation and monetary policy in the wake of the great recession in this paper we provide compelling evidence that cyclical factors account for the bulk of the post 2007 decline in the u s labor force participation rate we then proceed to formulate a stylized new keynesian model in which labor force participation is essentially acyclical during normal times that is in response to small or transitory shocks but drops markedly in the wake of a large and persistent aggregate demand shock finally we show that these considerations can have potentially crucial implications for the design of monetary policy especially under circumstances in which adjustments to the short term interest rate are constrained by the zero lower bound

international spillovers of quantitative easing abstract this paper develops a two country model with asset market segmentation to investigate the effects of quantitative easing implemented by the major central banks on a typical small open economy that follows independent monetary policy the model is able to replicate the key empirical facts on emerging countries response to large scale asset purchases conducted abroad including inflow of capital to local sovereign bond markets an increase in international comovement of term premia and change in the responsiveness of the exchange rate to interest rate differentials according to our simulations quantitative easing abroad boosts domestic demand in the small economy but undermines its international competitiveness and depresses aggregate output at least in the short run this is in contrast to conventional monetary easing in the large economy which has positive spillovers to output in other countries we also find that limiting quantitative easing spillovers might require policies that affect directly international capital flows like purchasing assets by the small economy s central bank

the perils of taylor rules abstract since john taylor s 1993 carnegie rochester conf ser publ policy39 195 214 seminal paper a large literature has argued that active interest rate feedback rules that is rules that respond to increases in inflation with a more than one for one increase in the nominal interest rate are stabilizing in this paper we argue that once the zero bound on nominal interest rates is taken into account active interest rate feedback rules can easily lead to unexpected consequences specifically we show that even if the steady state at which monetary policy is active is locally the unique equilibrium typically there exist an infinite number of equilibrium trajectories originating arbitrarily close to that steady state that converge to a liquidity trap that is a steady state in which the nominal interest rate is near zero and inflation is possibly negative journal of economic literature classification numbers e52 e31 e63

medium term money neutrality and the effective lower bound conventional wisdom suggests that medium term money neutrality imposes strong limitations on the effects of monetary policy the point of this paper is that models with medium and long term money neutrality are prone to generate nonexistence of equilibria at the effective lower bound elb on interest rates nonexistence is suggestive of sharp output contractions so called contractionary black holes at the elb paradoxically the case for expansionary monetary policy at the elb is even stronger in models that feature near money neutrality the results highlight the benefits of a monetary policy regime in which the central bank temporarily overshoots its inflation target once confronted by the elb

unintended consequence of centralized public school funding in michigan education 1 introductionin an effort to create greater equity among school districts a number of states have shifted the responsibility for school funding from local school districts to the state although many researchers have found that centralizing funding for public schools has been successful in creating greater equity murray evans and schwab 1998 moser and rubenstein 2002 other researchers have pointed out that centralizing funding can lead to unintended consequences for example fischel 1989 1992 suggests that families in wealthier districts which have a stronger demand for education are no longer able to match their preference for education under a system of equalized funding in some cases this may drive parents to seek private school alternatives downes and schoeman 1998 1 in other cases families meet their preferences by making private contributions to public schools sonstelie and brunner 1997 furthermore theobald and picus 1991 argue that centralizing funding forces education as a state service to compete with other state services for funds and as a result the growth rate of spending per pupil decreases over time 2 these articles illustrate that policies designed to centralize control of public school funding can produce unintended consequences in this article we introduce into the literature an additional consequence caused by centralizing control of school funding we argue that centralized control of public school funding with the objective to equalize operating expenditures i e salaries supplies and other ongoing expenses across school districts while leaving capital acquisitions i e purchases of school buildings and other facilities under local control results in resource rich school districts becoming more reliant on debt financing 3 we find empirical support for this theory using data in the state of michigan during its transition to a centralized school financing system in 1994 in the next section we present an overview of michigan s move to a centralized funding policy in the third section we present the regression model used to test the theory followed by the description of the data and the estimated results the final section of the study summarizes our findings 2 overview of michigan s educational systemin 1993 a legislative anomaly lead to an abrupt change in the method of financing public education in michigan prior to 1993 michigan had one of the most locally controlled school systems in the united states over 65 of school operating expenditures came from local revenues whereas the remaining 35 were derived from state and federal sources courant gramlich and loeb 1995 property owners argued that local reliance on property taxes created an excessive burden and voiced their complaints to state representatives attempts to lower these taxes were defeated annually until debbie stabenow a democrat senator and candidate for governor frustrated with the tax debate proposed an absurdity to eliminate all property taxes without suggesting an alternative funding mechanism courant and loeb 1997 astonishingly the legislature passed her bill leaving the public school system with no means of funding seizing an opportunity to create greater equity among school districts michigan officials quickly devised a centralized system of financing public school operations known as proposal a that reduces districts reliance on local property taxes by increasing the state s sales tax integrated into proposal a is a distribution formula that reduces the disparity in operating expenditures across high and low spending school districts in part by constraining the allocation of operating funds for high spending districts however proposal a does not affect local control of funding for capital projects watkins 2002 michigan s state operating budget typically provides less than 5 of the total revenue needed to service school debt and no revenue for capital expenditures

political markets property tax referenda and local school spending for better or worse fiscal decisions made through property tax referenda allow local political markets to work demand supply and voting process components of such markets are estimated for those oregon k 12 school districts that held referenda between 1981 and 1986 various attributes of the median voter were related to school spending but supply decisions by school boards and administrators were also important large districts used state aid to substitute for local property tax revenues on nearly a one for one basis while relying on reversion budgets inadequate property tax bases and implicit threats of school closures to extract greater than desired spending levels from the median voter

does voter turnout influence school bond elections this article investigates the role of voter turnout in school bond election outcomes it is widely believed that turnout is negatively related to bond approval rates conclusions from previous empirical research however may be misleading because many sociodemographic factors and election parameters that influence bond support are also likely to influence voter turnout decisions to account for the endogeneity of turnout we employ an instrumental variable approach we find that the persistent part of voter turnout plays a negligible role in explaining bond approval shares conditioned on election timing past voting behavior and district characteristics using first difference models change in turnout has a negative and significant influence on change in approval share and probability of bond success our results support previous research and suggest that targeted voter mobilization strategies have the potential to influence school bond outcomes

forward guidance and the state of the economy this paper analyzes forward guidance in a nonlinear model with a zero lower bound zlb on the nominal interest rate forward guidance is modeled with news shocks to the monetary policy rule which capture innovations in expectations from central bank communication about future policy rates whereas most studies use quasi linear models that disregard the expectational effects of hitting the zlb we show how the effectiveness of forward guidance nonlinearly depends on the state of the economy the speed of the recovery the degree of uncertainty the policy shock size and the forward guidance horizon when households account for the zlb jel e43 e58 e61

the new keynesian cross abstract the new keynesian nk cross is a graphical and analytical apparatus for heterogeneous agent hank models expressing key aggregate demand objects mpc and multipliers as functions of heterogeneity parameters it affords analytical insights into monetary fiscal and forward guidance multipliers and replicates the aggregate implications of quantitative hank the key parameter the constrained agents income elasticity to aggregate income depends on fiscal redistribution when it is larger smaller than one the effects of policies and shocks are amplified dampened with uninsurable idiosyncratic uncertainty this translates intertemporally through compounding discounting in the aggregate euler equation into further amplification dampening of future shocks

the power of forward guidance in a quantitative tank model abstract we quantify the macroeconomic effects of interest rate forward guidance in an estimated medium scale two agent new keynesian tank model although tank models can in principle dampen or amplify the power of forward guidance compared to a representative agent model our estimates indicate a dampening as there is sufficient countercyclical redistribution an interaction of forward guidance with asset purchases gives rise to non linear effects that depend on the horizon of the interest rate peg

the effects of the near zero interest rate policy in a regime switching dynamic stochastic general equilibrium model abstract standard dynamic stochastic general equilibrium dsge models cannot explain the near zero interest rate policy near zirp by the federal reserve i study two methods of modeling the near zirp in dsge models the perfect foresight model and the markov regime switching model developed in this paper the near zirp has a significant expansionary effect and the regime switching model generates a more realistic predicted path of macro variables than the perfect foresight model furthermore the government purchases multiplier in the near zirp regime is smaller than what the literature finds at the zero lower bound zlb and the contractionary effects of higher productivity found by the recent literature at the zlb are not present in the regime switching model

on inflation and output with costly price changes a simple unifying result this paper determines the real effects of credible disinflation when price setting is staggered the results are surprising a fairly quick disinflation causes a boom this finding suggests that nominal price rigidity alone does not explain why disinflation is costly in actual economies this abstract was borrowed from another version of this item

can more public information raise uncertainty the international evidence on forward guidance abstract central banks have used different types of forward guidance this paper reports cross country evidence showing that in general forward guidance mutes the response of government bond yields to macroeconomic news however calendar based guidance with a short horizon counter intuitively raises it using a stylized model where agents learn from market signals it shows that the public release of more precise information about future rates lowers the informativeness of market signals and as a consequence may increase uncertainty and amplify the reaction of expectations to macroeconomic news

uncovered interest parity forward guidance and the exchange rate under uncovered interest parity uip the size of the effect on the real exchange rate of an anticipated change in real interest rate differentials is invariant to the horizon at which the change is expected empirical evidence using us euro area and uk data points to a substantial deviation from that invariance prediction expectations of interest rate differentials in the near distant future are shown to have much larger smaller effects on the real exchange rate than is implied by uip some possible explanations are discussed