University of Texas at Austin
Department of Economics
2225 Speedway, Stop C3100
Austin, TX 78712-1690
Information about this author at RePEc
NBER Working Papers and Publications
|July 2015||Time Consistency and the Duration of Government Debt: A Signalling Theory of Quantitative Easing|
with Gauti B. Eggertsson, Bulat Gafarov: w21336
We present a signalling theory of Quantitative Easing (QE) at the zero lower bound on the short term nominal interest rate. QE is effective because it generates a credible signal of low future real interest rates in a time consistent equilibrium. We show these results in two models. One has coordinated monetary and fiscal policy. The other an independent central bank with balance sheet concerns. Numerical experiments show that the signalling effect can be substantial in both models.
|February 2014||Is Increased Price Flexibility Stabilizing? Redux|
with Gauti Eggertsson, Raphael Schoenle: w19886
We study the implications of increased price flexibility on output volatility. In a simple DSGE model, we show analytically that more flexible prices always amplify output volatility for supply shocks and also amplify output volatility for demand shocks if monetary policy does not respond strongly to inflation. More flexible prices often reduce welfare, even under optimal monetary policy if full efficiency cannot be attained. We estimate a medium-scale DSGE model using post-WWII U.S. data. In a counterfactual experiment we find that if prices and wages are fully flexible, the standard deviation of annualized output growth more than doubles.