Person
Charles T. Carlstrom
Contributing Author
Charles T. Carlstrom is a contributing author and former employee of the Federal Reserve Bank of Cleveland.
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Working Papers
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Working Paper
Macro Credit Policy and the Financial Accelerator
12.18.2015 | WP 15-31This 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. -
Working Paper
Optimal Contracts, Aggregate Risk, and the Financial Accelerator
10.10.2014 | WP 14-20This paper derives the optimal lending contract in the financial accelerator model of Bernanke, Gertler and Gilchrist (1999). -
Working Paper
Targeting Long Rates in a Model with Segmented Markets
10.09.2014 | WP 14-19This 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. -
Working Paper
Estimating Contract Indexation in a Financial Accelerator Model
10.01.2013 | WP 12-16RThis 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). -
Working Paper
Privately Optimal Contracts and Suboptimal Outcomes in a Model of Agency Costs
10.01.2013 | WP 12-39RThis paper derives the privately optimal lending contract in the celebrated financial accelerator model of Bernanke, Gertler, and Gilchrist (1999). -
Working Paper
Privately Optimal Contracts and Suboptimal Outcomes in a Model of Agency Costs
12.28.2012 | WP 12-39This paper derives the privately optimal lending contract in the celebrated financial accelerator model of Bernanke, Gertler, and Gilchrist (1999). -
Working Paper
Fiscal Multipliers under an Interest Rate Peg of Deterministic vs. Stochastic Duration
12.17.2012 | WP 12-35This paper revisits the size of the fiscal multiplier. The experiment is a fiscal expansion under the assumption of a pegged nominal rate of interest. -
Working Paper
Inflation and Output in New Keynesian Models with a Transient Interest Rate Peg
12.16.2012 | WP 12-34Recent 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. -
Working Paper
Fiscal Multipliers under an Interest Rate Peg of Deterministic vs. Stochastic Duration
06.19.2012 | WP 12-15This paper revisits the size of the fiscal multiplier. The experiment is a fiscal expansion under the assumption of a pegged nominal rate of interest. -
Working Paper
Estimating Contract Indexation in a Financial Accelerator Model
06.19.2012 | WP 12-16This 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). -
Working Paper
Privately Optimal Contracts and Suboptimal Outcomes in a Model of Agency Costs
01.27.2012 | WP 12-04This paper derives the privately optimal lending contract in the celebrated financial accelerator model of Bernanke, Gertler, and Gilchrist (1999). -
Working Paper
How Inflationary Is an Extended Period of Low Interest Rates?
01.12.2012 | WP 12-02A 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. -
Working Paper
Indexed Debt Contracts and the Financial Accelerator
08.08.2011 | WP 11-17This paper addresses the positive and normative implications of indexing risky debt to observable aggregate conditions. -
Working Paper
Inflation Persistence, Inflation Targeting, and the Great Moderation
12.01.2007 | WP 07-21There is growing evidence that the empirical Phillips curve within the US has changed significantly since the early 1980's. -
Working Paper
Central Bank Independence and Inflation: A Note
12.01.2006 | WP 06-21We document increased central bank independence within the set of industrialized nations. -
Working Paper
Co-Movement in Sticky Price Models with Durable Goods
11.01.2006 | WP 06-14Barsky, 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. -
Working Paper
Oil Prices, Monetary Policy, and Counterfactual Experiments
10.01.2005 | WP 05-10Recessions are associated with both rising oil prices and increases in the federal funds rate. -
Working Paper
Asset Prices, Nominal Rigidities, and Monetary Policy
12.01.2004 | WP 04-13Should monetary policy respond to asset prices? This paper analyzes this question from the vantage point of equilibrium determinacy. -
Working Paper
Thinking about Monetary Policy without Money: A Review of Three Books: Inflation Targeting, Monetary Theory and Policy, and Interest and Prices
10.31.2004 | WP 04-10This paper reviews three recent books. Two books, one by Carl Walsh and one by Michael Woodford, focus on the development of monetary theory. -
Working Paper
Capital Trading, Stock Trading, and the Inflation Tax on Equity: A Note
12.21.2003 | WP 03-21In "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. -
Working Paper
Investment and Interest Rate Policy: A Discrete Time Analysis
12.20.2003 | WP 03-20This 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. -
Working Paper
Comments on Backward-Looking Interest-Rate Rules, Interest-Rate Smoothing, and Macroeconomic Instability
12.19.2003 | WP 03-19Benhabib, 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. -
Working Paper
Imperfect Capital Markets and Nominal Wage Rigidities
06.01.2002 | WP 02-05Should monetary policy respond to asset prices? This paper analyzes a general equilibrium model with imperfect capital markets and rigid nominal wages. -
Working Paper
Does It Matter (for Equilibrium Determinacy) What Price Index the Central Bank Targets?
04.01.2002 | WP 02-02What inflation rate should the central bank target? -
Working Paper
Timing and Real Indeterminacy in Monetary Models
10.10.2001 | wp 99-10RAn 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. -
Working Paper
Monetary Policy in a World Without Perfect Capital Markets
10.01.2001 | WP 01-15This 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. -
Working Paper
Learning and the Central Bank
10.01.2001 | WP 01-17It 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). -
Working Paper
Taylor Rules in a Model that Satisfies the Natural Rate Hypothesis
10.01.2001 | WP 01-16The 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. -
Working Paper
Monetary Shocks, Agency Costs, and Business Cycles
08.01.2000 | WP 00-11This 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. -
Working Paper
Forward-Looking Versus Backward-Looking Taylor Rules
08.01.2000 | WP 00-09This paper analyzes the restrictions necessary to ensure that the policy rule used by the central bank does not introduce real indeterminacy into the economy. -
Working Paper
Money Growth Rules and Price Level Determinacy
08.01.2000 | WP 00-10The authors show that in a plausibly calibrated monetary model with explicit production, exogenous money growth rules ensure real determinacy and thus avoid sunspot fluctuations. -
Working Paper
Optimal Monetary Policy in a Small Open Economy: A General Equilibrium Analysis
09.01.1999 | WP 99-11This 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? -
Working Paper
Timing and Real Indeterminacy in Monetary Models
09.01.1999 | WP 99-10An 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. -
Working Paper
Real Indeterminacy in Monetary Models with Nominal Interest Rate Distortions: The Problem with Inflation Targets
09.01.1998 | WP 98-18This paper demonstrates that in a standard monetary model there exists real indeterminacy whenever the nominal interest rate moves too closely with the real rate. -
Working Paper
Real Indeterminacy in Monetary Models with Nominal Interest Rate Distortions: The Problem with Inflation Targets
09.01.1998 | WP 98-18RThis paper demonstrates that in a standard monetary model there exists real indeterminacy whenever the nominal interest rate moves too closely with the real rate. -
Working Paper
Price-Level and Interest-Rate Targeting in a Model with Sticky Prices
08.01.1998 | WP 98-19This paper examines a standard sticky price monetary model. -
Working Paper
Marginal Tax Rates and Income Inequality in a Life-Cycle Model
12.01.1996 | WP 96-21In this paper, we perform computational counterfactual experiments to examine the quantitative impact of marginal tax rates on the distribution of income. -
Working Paper
Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis
05.01.1996 | WP 96-02An 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. -
Working Paper
Marginal Tax Rates and Income Inequality: A Quantitative-Theoretic Analysis
08.01.1995 | WP 95-08In 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. -
Working Paper
Interest Rate Rules vs. Money Growth Rules: A Welfare Comparison in a Cash-In-Advance Economy
06.01.1995 | WP 95-04This paper considers the welfare consequences of two particularly simple rules for monetary policy: an interest rate peg and a money growth peg. -
Working Paper
Computable General-Equilibrium Models and Monetary Policy Advice
05.01.1995 | WP 95-03This 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. -
Working Paper
Loan Sales as a Response to Market-Based Capital Constraints
12.01.1993 | WP 93-13Models of bank loan sales often appeal to regulatory constraints to motivate this off-balance-sheet activity. -
Working Paper
The Efficiency and Welfare Effects of Tax Reform: Are Fewer Tax Brackets Better Than More?
11.01.1992 | WP 92-12We 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. -
Working Paper
Zero Inflation: Transition Costs and Shoe-Leather Benefits
10.01.1991 | WP 91-13A 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. -
Working Paper
Bracket Creep in the Age of Indexing: Have We Solved the Problem?
06.01.1991 | WP 91-08Indexation of the personal tax code for price-level changes represents one of the most significant elements of U.S. tax legislation in the 1980s. -
Working Paper
Magnification Effects and Acyclical Real Wages
04.01.1991 | WP 91-05An analysis of a one-period, two-sector model in which firms must pay a fixed cost of hiring. -
Working Paper
Inflation, Personal Taxes, and Real Output: A Dynamic Analysis
02.01.1991 | WP 91-02An 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. -
Working Paper
Inflation and the Personal Tax Code: Assessing Indexation
07.01.1990 | WP 90-06A reexamination of the potential costs of anticipated inflation in view of the inflation indexing system established during the 1980s. -
Working Paper
A Two-Sector Implicit Contracting Model with Procyclical Quits and Involuntary Layoffs
02.01.1989 | WP 89-02An explanation of involuntary unemployment and procyclical quits based on models of implicit contracts and on-the-job search. -
Working Paper
Money, Inflation, and Sectoral Shifts
12.01.1988 | WP 88-14A 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. -
Working Paper
Implicit Contracts, On-the-Job Search and Involuntary Unemployment
12.01.1987 | WP 87-12This 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. -
Working Paper
Monetary Policy in an Economy with Nominal Wage Contracts
12.01.1987 | WP 87-10A demonstration that optimal monetary policy can be either procyclical or countercyclical in a model where wages are "sticky" because of a nominal contracting constraint. -
Working Paper
Turnover Wages and Adverse Selection
12.01.1987 | WP 87-17An explanation of the observed relationships between voluntary job turnover and wages over a worker’s lifetime, using a model featuring adverse selection.
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Economic Commentaries
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Economic Commentary
The Natural Rate of Interest in Taylor Rules
03.22.2016 | EC 2016-01The 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. -
Economic Commentary
Do Forecasters Agree on a Taylor Rule?
09.02.2015 | EC 2015-10We use a Taylor rule to investigate two possible reasons why forecasters’ projections for short-term interest rates differ so much. -
Economic Commentary
Adding Double Inertia to Taylor Rules to Improve Accuracy
05.08.2014 | EC 2014-08A 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. -
Economic Commentary
Using an Improved Taylor Rule to Predict When Policy Changes Will Occur
03.04.2014 | EC 2014-02A 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. -
Economic Commentary
Gaps versus Growth Rates in the Taylor Rule
10.12.2012 | EC 2012-17There are many possible formulations of the Taylor rule. We consider two that use different measures of economic activity to which the Fed could react.... -
Economic Commentary
Monetary Policy in a World with Interest on Reserves
06.10.2010 | EC 2010-04Banks 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. -
Economic Commentary
Conducting Monetary Policy When Interest Rates Are Near Zero
12.21.2009 | EC 10/1/2009This 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. -
Economic Commentary
Explaining Apparent Changes in the Phillips Curve: The Great Moderation and Monetary Policy
02.01.2008 | EC 2/1/2008Observations 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. -
Economic Commentary
Explaining Apparent Changes in the Phillips Curve: Trend Inflation Isn't Constant
01.01.2008 | EC 1/1/2008Monetary policymakers look to the Phillips curve for information about the cost of actions undertaken to lower inflation. -
Economic Commentary
Milton Friedman, Teacher, 1912–2006
12.01.2006 | EC 12/1/2006Nobel laureate Milton Friedman, who died on November 16, 2006, changed the course of modern central banking. -
Economic Commentary
Central Bank Independence: The Key to Price Stability?
09.01.2006 | EC 9/1/2006Low inflation over long periods is the sign of an effective central bank. -
Economic Commentary
Considerable Period of Time: The Case of Signaling Future Policy
11.01.2005 | EC 11/1/2005There has been a remarkableincrease in FOMC communicationover the last decade. -
Economic Commentary
Oil Prices, Monetary Policy, and the Macroeconomy
07.01.2005 | EC 7/1/2005Recessions are associated with bothrising oil prices and increases in thefederal funds rate. -
Economic Commentary
Expected Inflation and TIPS
11.01.2004 | EC 11/1/2004When inflation-indexed Treasury securities were first introduced, economists hoped that they could be used to measure expected inflation easily. -
Economic Commentary
The Taylor Rule: A Guidepost for Monetary Policy?
07.01.2003 | EC 7/1/2003Once 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? -
Economic Commentary
Stock Prices and Output Growth: An Examination of the Credit Channel
08.15.2002 | EC 8/15/2002When 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. -
Economic Commentary
Monetary Policy Rules and Stability: Inflation Targeting versus Price-Level Targeting
02.15.2002 | EC 2/15/2002Monetary 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. -
Economic Commentary
Perils of Price Deflations: An Analysis of the Great Depression
02.15.2001 | EC 2/15/2001If 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. -
Economic Commentary
Forecasts and Sunspots: Looking Back for a Better Future
11.01.1999 | EC 11/1/1999Some 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. -
Economic Commentary
Money Growth and Inflation: Does Fiscal Policy Matter?
04.15.1999 | EC 4/15/1999The 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. -
Economic Commentary
Government-Subsidized Training: A Plan for Prosperity?
05.15.1998 | EC 5/15/1998Should 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. -
Economic Commentary
Interest Rate Rules for Seasonal and Business Cycles
07.01.1996 | EC 7/1/1996When 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. -
Economic Commentary
A Monetary Policy Paradox
08.15.1995 | EC 8/15/1995One 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. -
Economic Commentary
The Economics of Health Care Reform
09.15.1994 | EC 9/15/1994Few 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. -
Economic Commentary
The Government's Role in the Health Care Industry: Past, Present, and Future
06.01.1994 | EC 6/1/1994In 1965, Congress enacted Medicare and Medicaid to ensure that poor and elderly Americans would not be denied access to health care. -
Economic Commentary
Assessing Real Interest Rates
08.15.1993 | EC 8/15/1993Since 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. -
Economic Commentary
Enterprise Liability: A Prescription for Health Care Reform?
07.01.1993 | EC 7/1/1993Few issues facing society touch as many lives as health care. -
Economic Commentary
Securitization: More than Just a Regulatory Artifact
05.01.1992 | EC 5/1/1992Competitive 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. -
Economic Commentary
The Effect of War Expenditures on U.S. Output
02.15.1991 | EC 2/15/1991The war with Iraq has become the most extensive U.S. military involvement since Vietnam. -
Economic Commentary
Does The Fed Cause Christmas?
01.01.1990 | EC 1/1/1990The 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. -
Economic Commentary
Bank Runs, Deposit Insurance, and Bank Regulation, Part I
02.15.1988 | EC 2/1/1988Widespread 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. -
Economic Commentary
Bank Runs, Deposit Insurance, and Bank Regulation, Part II
02.15.1988 | EC 2/15/1988Part I of this article, presented in the February 1 Economic Commentary, described some of the costs and benefits of providing federal deposit insurance.
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