Charles T. Carlstrom

This paper studies macro credit policies within the celebrated financial accelerator model of Bernanke, Gertler and Gilchrist (1999). The focus is on borrower-based restrictions on lending such as loan-to-value (LTV) ratios.

This paper derives the optimal lending contract in the financial accelerator model of Bernanke, Gertler and Gilchrist (1999).

This paper develops a model of segmented financial markets in which the net worth of financial institutions limits the degree of arbitrage across the term structure.

This paper derives the privately optimal lending contract in the celebrated financial accelerator model of Bernanke, Gertler, and Gilchrist (1999).

This paper addresses the positive implications of indexing risky debt to observable aggregate conditions. These issues are pursued within the context of the celebrated financial accelerator model of Bernanke, Gertler and Gilchrist (1999).

This paper derives the privately optimal lending contract in the celebrated financial accelerator model of Bernanke, Gertler, and Gilchrist (1999).

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.

Recent monetary policy experience suggests a simple diagnostic for models of monetary non-neutrality. We pursue this simple diagnostic in several variants of the familiar Dynamic New Keynesian (DNK) model.

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.

This paper addresses the positive implications of indexing risky debt to observable aggregate conditions. These issues are pursued within the context of the celebrated financial accelerator model of Bernanke, Gertler and Gilchrist (1999).

This paper derives the privately optimal lending contract in the celebrated financial accelerator model of Bernanke, Gertler, and Gilchrist (1999).

A monetary model should be rejected if a reasonably short nominal rate peg results in an unreasonably large inflation response. We pursue this simple test in three variants of the familiar dynamic new Keynesian (DNK) model. All fail.

This paper addresses the positive and normative implications of indexing risky debt to observable aggregate conditions.

There is growing evidence that the empirical Phillips curve within the US has changed significantly since the early 1980's.

We document increased central bank independence within the set of industrialized nations.

Barsky, House, and Kimball (2005) demonstrate that in a standard sticky price model a monetary contraction will lead to a decline in nondurable goods production but an increase in durable goods production, so that aggregate output is little changed.

Recessions are associated with both rising oil prices and increases in the federal funds rate.

Should monetary policy respond to asset prices? This paper analyzes this question from the vantage point of equilibrium determinacy.

This paper reviews three recent books. Two books, one by Carl Walsh and one by Michael Woodford, focus on the development of monetary theory.

In "Capital Trading, Stock Trading, and the Inflation Tax on Equity," Chami, Cosimano, and Fullenkamp (2001) (hereafter, CCF) analyze a cash-in-advance model in which capital goods are explicitly traded. The authors show that there is more responsiveness of consumption and output to changes in the money supply than exists in the standard neoclassical growth models. This note demonstrates that this arises because CCF implicitly imposed an additional equilibrium restriction on the Cooley and Hansen (1989) model. This restriction can be imposed only if the Cooley and Hansen model is subject to real indeterminacy which occurs whenever the risk aversion coefficient (denoted by γ in the Chami et al paper) exceeds 2.

This paper analyzes the restrictions necessary to ensure that the interest rate policy rule used by the central bank does not introduce local real indeterminacy into the economy.

Benhabib, Schmitt-Grohe, and Uribe (2003) argue that if you relied solely on local analysis you would be led to believe that aggressive, backward-looking interest rate rules are sufficient for determinacy.

Should monetary policy respond to asset prices? This paper analyzes a general equilibrium model with imperfect capital markets and rigid nominal wages.

What inflation rate should the central bank target?

An increasingly common approach to the theoretical analysis of monetary policy is to ensure that a proposed policy does not introduce real indeterminacy and thus sunspot fluctuations into the model economy.

This working paper examines a theoretical model in which an entrepreneur's net worth affects his ability to finance current activity. Net worth, in turn, is determined by asset prices, which can be affected by monetary policy.

It is well known that sunspot equilibria may arise under an interest-rate operating procedure in which the central bank varies the nominal rate with movements in future inflation (a forward-looking Taylor rule).

The authors analyze the restrictions necessary to ensure that the interest-rate policy rule used by the central bank does not introduce real indeterminacy into the economy.

The authors show that in a plausibly calibrated monetary model with explicit production, exogenous money growth rules ensure real determinacy and thus avoid sunspot fluctuations.

This paper integrates money into a real model of agency costs. Money is introduced by imposing a cash-in-advance constraint on a subset of transactions.

This paper analyzes the restrictions necessary to ensure that the policy rule used by the central bank does not introduce real indeterminacy into the economy.

This paper uses a model of a small, open economy to address two monetary policy issues: 1) What restrictions on the policy rule ensure that the central bank does not introduce real indeterminacy into the economy? and 2) What is the optimal long-run rate of inflation?

An increasingly common approach to the theoretical analysis of monetary policy is to ensure that a proposed policy does not introduce real indeterminacy and thus sunspot fluctuations into the model economy.

This paper demonstrates that in a standard monetary model there exists real indeterminacy whenever the nominal interest rate moves too closely with the real rate.

This paper demonstrates that in a standard monetary model there exists real indeterminacy whenever the nominal interest rate moves too closely with the real rate.

This paper examines a standard sticky price monetary model.

In this paper, we perform computational counterfactual experiments to examine the quantitative impact of marginal tax rates on the distribution of income.

An analysis of the quantitative effects of agency costs in a real business cycle model, showing that these costs can explain why output growth displays positive autocorrelation at short horizons.

In this paper, we employ a quantified general equilibrium model to study the effects of changes in marginal income-tax rate structures on the distribution of income.

This paper considers the welfare consequences of two particularly simple rules for monetary policy: an interest rate peg and a money growth peg.

This paper argues that variations of extant general-equilibrium monetary models are capable of generating real-time economic forecasts comparable in accuracy to those generated under the standard Federal Reserve Board staff methodology.

Models of bank loan sales often appeal to regulatory constraints to motivate this off-balance-sheet activity.

We examine the efficiency and welfare implications of shifting from a linear marginal tax rate structure to a discrete rate structure characterized by two regions of flat tax rates of 15 and 28 percent.

A comparison showing that the transition costs of indexing inflation (a major obstacle to monetary policy reform) are approximately equal to the minor shoe-leather benefits of having price stability.

Indexation of the personal tax code for price-level changes represents one of the most significant elements of U.S. tax legislation in the 1980s.

An analysis of a one-period, two-sector model in which firms must pay a fixed cost of hiring.

An examination, using the overlapping-generations approach, of how the interactions between inflation and the nominal taxation of capital income affect the cyclical behavior of the U.S. economy.

A reexamination of the potential costs of anticipated inflation in view of the inflation indexing system established during the 1980s.

An explanation of involuntary unemployment and procyclical quits based on models of implicit contracts and on-the-job search.

A presentation of a sectoral-shifts model with money that explains the short-run Phillips curve and predicts a long-run positive relationship between inflation and unemployment.

This paper extends the implicit contracts framework to allow for on-the-job search. It is shown that involuntary unemployment can arise in such a framework without placing any a priori restrictions on either wages or severance payments.

A demonstration that optimal monetary policy can be either procyclical or countercyclical in a model where wages are "sticky" because of a nominal contracting constraint.

An explanation of the observed relationships between voluntary job turnover and wages over a worker’s lifetime, using a model featuring adverse selection.

The natural rate of interest is assumed to be constant over time in Taylor rules. Since this assumption is likely incorrect, we show how the Taylor rule can account for a variable natural rate by incorporating long-term productivity growth.

We use a Taylor rule to investigate two possible reasons why forecasters’ projections for short-term interest rates differ so much.

A Taylor rule captures the historical behavior of the federal funds rate better when it also includes a partial-adjustment factor. We add another type of partial adjustment and improve the rule’s fit.

A standard Taylor rule, which expresses the federal funds rate as a function of inflation, the unemployment gap, and the past federal funds rate, tracks the federal funds rate well over time. We improve the fit by adding employment growth. Then we evaluate the effectiveness of that rule in a new way—by how accurately it predicts whether the FOMC moves the fed funds rate at its next meeting. It does pretty well, predicting nearly 70 percent of the time correctly.

There are many possible formulations of the Taylor rule. We consider two that use different measures of economic activity to which the Fed could react....

Banks have long been required to hold reserves equal to a percentage of their net transactions accounts (checkable deposits, for example), but until recently, they earned no interest on those reserves.

This Commentary explains concerns associated with the combination of deflation, low economic activity, and zero nominal interest rates and describes how monetary policy might be conducted in such a situation.

Observations that the Phillips curve may be deviating from historical norms are important to policymakers becausedeviations would imply that more or less output has to be sacrificed to achieve a permanent reduction in long-term inflation.

Monetary policymakers look to the Phillips curve for information about the cost of actions undertaken to lower inflation.

Nobel laureate Milton Friedman, who died on November 16, 2006, changed the course of modern central banking.

Low inflation over long periods is the sign of an effective central bank.

There has been a remarkableincrease in FOMC communicationover the last decade.

Recessions are associated with bothrising oil prices and increases in thefederal funds rate.

When inflation-indexed Treasury securities were first introduced, economists hoped that they could be used to measure expected inflation easily.

Once a topic to be found only in scholarly economic journals, the Taylor rule is popping up regularly in news magazines, finance journals, and central bankers’ speeches. Does the Fed follow the rule? Should it?

When stock market values fall, we know it means investors expect lower economic growth in the future. But can stock market declines actually affect future growth? There is some evidence that they can—through the credit channel.

Monetary policy rules help central banks exercise the discipline necessary to achieve their long-term goals. The type of rule many banks are turning to these days is inflation targeting, which has several advantages.

If a central bank adopts a zero inflation target, it would, in practice, occasionally deviate from that rate up and down, and the economy would experience episodes of mild inflation and deflation.

Some would argue that economic forecasts are about as accurate as soothsayers and weather forecasts. Yet central banks all around the world make such forecasts and use them when conducting monetary policy.

The determinants of inflation have long interested both economists and central bankers. This interest has taken on renewed importance in light of a growing consensus that central banks should —first and foremost—pursue price stability.

Should the United States do more to increase its workers’ skills? Many say it should, arguing that subsidized training helps countries maintain flexible, productive workforces in the face of technological change and global competition.

When the Federal Reserve System was established in 1914, part of its purpose was "to furnish an elastic currency," that is, a currency that could be quickly expanded or contracted as needed.

One of the most difficult tasks faced by any central bank is explaining to the public the role that interest rates play in the conduct of monetary policy.

Few things are as important to Americans as good medical care. In 1992, we spent about 14 percent of our national output on health-related services, and by the year 2000, mat share is expected to reach nearly 19 percent.

In 1965, Congress enacted Medicare and Medicaid to ensure that poor and elderly Americans would not be denied access to health care.

Since the late 1970s, the Federal Open Market Committee (FOMC) of the Federal Reserve System has set ranges for growth of money and debt at the beginning of each year, as required by the Humphrey-Hawkins Act.

Few issues facing society touch as many lives as health care.

Competitive and regulatory pressures have prompted banks and other financial intermediaries to participate in credit markets in ways that are not directly reflected on their balance sheets.

The war with Iraq has become the most extensive U.S. military involvement since Vietnam.

The casual observer, noting that money and output are frequently correlated, might assume that there is a causal relationship between the two. A closer look at the evidence suggests otherwise.

Widespread bank failures are often thought to be a possible consequence of a banking system without federal deposit insurance. This article considers whether federal deposit insurance is necessary to prevent bank runs.

Part I of this article, presented in the February 1 Economic Commentary, described some of the costs and benefits of providing federal deposit insurance.