China’s over 25% aggregate household saving rate is one of the highest in the world. One popular view attributes the high saving rate to fast-rising housing prices in China. However, cross-sectional data do not show a significant relationship between housing prices and household saving rates.
This paper develops an analytically tractable Bewley model of money featuring capital and
financial intermediation. It is shown that when money is a vital form of liquidity to meet
uncertain consumption needs, the welfare costs of inflation can be extremely large.
In February 2005 Federal Reserve Chairman Alan Greenspan noticed that the 10-year Treasury yields failed to increase despite a 150-basis-point increase in the federal funds rate as a “conundrum.” This paper shows that the connection between the 10-year yield and the federal funds rate was severed in the late 1980s, well in advance of Greenspan’s observation.
This article uses a DSGE framework to evaluate the role of monetary policy
in determining the likelihood of encountering the zero lower bound. We find
that the probability of experiencing episodes of being at zero lower bound
depends almost exclusively on the monetary policy rule.
In the aftermath of the global financial crisis, a new policy paradigm has emerged
in which old-fashioned policies such as capital controls and other government distor-
tions have become part of the standard policy toolkit (the so-called macro-prudential
After the collapse of housing markets during the Great Depression, the U.S.
government played a large role in shaping the future of housing finance and policy.
Soon thereafter, housing markets witnessed the largest boom in recent history.
We use a dynamic stochastic general equilibrium model to address two questions about
U.S. monetary policy: 1) Can monetary policy elevate output when it is below potential? and 2) Is
the zero lower bound a trap?
Through a purely positive lens, we study and document the growing trend of mortgagors who skip mortgage payments as an extra source of "informal" unemployment insurance during the 2007 recession and the subsequent recovery.
Financial capital and fixed capital tend to flow in opposite directions between poor and
rich countries. Why? What are the implications of such two-way capital flows for global trade
imbalances and welfare in the long run? This paper introduces frictions into a standard two-
country neoclassical growth model to explain the pattern of two-way capital flows between
emerging economies (such as China) and the developed world (such as the United States).
The Federal Open Market Committee has recently attempted to stimulate economic growth using unconventional methods. Prominent among these is quantitative easing (QE)—the purchase of a large quantity of longer-term debt on the assumption that QE reduces long-term yields through the portfolio balance channel.
Factor models have become useful tools for studying international business cycles. Block
factor models [e.g., Kose, Otrok, and Whiteman (2003)] can be especially useful as the zero
restrictions on the loadings of some factors may provide some economic interpretation of the
We adopt a statistical approach to identify the shocks that explain most of the
fluctuations of the slope of the term structure of interest rates. We find that one single
shock can explain the majority of all unpredictable movements in the slope over
a 10-year forecast horizon.
This study proposes that heterogeneous household portfolio choices within a country and
across countries offer an explanation for global imbalances. We construct a stochastic growth
multi-country model in which heterogeneous agents face the following restrictions on asset
This paper proposes a model of international trade with capital accumulation and financial intermediation. This is achieved by embedding the Melitz (2003) model into an incomplete-markets neoclassical framework with an endogenous credit market.
Forecasting is a daunting challenge for business economists and policymakers, often made more difficult by pervasive uncertainty. No such uncertainty is more difficult than projecting the reaction of policymakers to major shifts in the economy.
We revisit the role of limited commitment in a dynamic risk-sharing setting with private information. We show that a Markov-perfect equilibrium, in which agent and insurer cannot commit beyond the current period, and an infinitely-long contract to which only the insurer can commit, implement identical consumption, effort and welfare outcomes.