Timothy S. Fuerst

Two traditional explanations for the mean and variability of the term premium are the time-varying risk premia on long bonds and the segmented markets between long- and short-term bonds. This paper integrates these two approaches into a medium-scale DSGE model, considering two sources of business cycle variability.

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 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 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.

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.

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 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.

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.

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

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.

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.

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.

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.

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.