This paper examines heterodox theories of the determinants of the value of money. Orthodox approaches that tie money's value to relative scarcity of money or to the price level are rejected as inconsistent with the monetary theory of production embraced by heterodox traditions linked to Marx,...

In the present paper, we investigate the financial homogeneity of the euro area economies by contrasting eurozone countries' responses to monetary policy steps to the theoretical assumptions of the liquidity trap phenomenon. Our assumption is that the euro area economies are not completely...

This paper examines heterodox theories of the determinants of the value of money. Orthodox approaches that tie money's value to relative scarcity of money or to the price level are rejected as inconsistent with the monetary theory of production embraced by heterodox traditions linked to Marx,...

We propose a novel methodology for solving Heterogeneous Agents New Keynesian (HANK) models with aggregate uncertainty and the Zero Lower Bound (ZLB) on nominal interest rates. Our efficient solution strategy combines the sequence-state Jacobian methodology in Auclert et al. (2021) with a...

We construct the first measure of collateral re-use at the bank and bond level for the European repo market using a regulatory transaction dataset. We show that banks materially increase the rate of re-use in response to tightened asset scarcity induced by the Eurosystem's asset purchase...

We introduce banks that issue liquid deposits backed by bonds and capital into an otherwise standard cash-in-advance economy. Liquidity transformation by banks increases aggregate consumption and investment relative to a cash-only economy but can also lead to inefficient overinvestment....

Empirical analyses starting from Laubach and Williams (2003) find that the natural rate of interest is not constant in the long-run. This paper studies the optimal response to stochastic changes of the long-run natural rate in a suitably modified version of the new Keynesian model. We show that,...

We construct the first measure of collateral re-use at the bank and bond level for the European repo market using a regulatory transaction dataset. We show that banks materially increase the rate of re-use in response to tightened asset scarcity induced by the Eurosystem’s asset purchase...

We characterize the joint optimal conduct of unconventional monetary and financial tax policies in a New Keynesian model wherein endogenous supply-side financial frictions generate inflationary credit spreads. Cost-push borrowing costs and private asset taxes substantially alter the transmission...

The literature on liquidity traps suggests that a non-linear version of the new Keynesian model is better suited to capture the complex implications of the zero lower bound. However, our research reveals an exceptional level of price dispersion that exceeds previous empirical estimates by...

We construct the first measure of collateral re-use at the bank and bond level for the European repo market using a regulatory transaction dataset. We show that banks materially increase the rate of re-use in response to tightened asset scarcity induced by the Eurosystem's asset purchase...

This paper analyzes a potential strategy for escaping liquidity traps. The strategy is based on an augmented Taylor-type interest-rate feedback rule and differs from usual specifications in that when inflation falls below a threshold, the central bank temporarily deviates from the traditional...

When the government issues long-term bonds, the optimal time-consistent fiscal and monetary policy is to consolidate debt in a liquidity trap by increasing taxes and by taming public spending. This prescription is at odds with large deficit-spending undertaken in the US during previous liquidity...

Negative interest rates remain a controversial policy for central banks. We study a novel signalling channel and ask under what conditions negative rates should exist in an optimal policymaker’s toolkit. We prove two necessary conditions for the optimality of negative rates: a time-consistent...

Recent influential work argue that a gradual increase in the sales tax stimulates economic activity in a liquidity trap by boosting inflation expectations. Higher public infrastructure investment should also be more expansive in a liquidity trap than in normal times by raising the potential...

The global financial crisis prompted the rapid development of macro-prudential frameworks and an increased reliance on borrower-based policy tools, which influence the demand for credit. This paper studies the optimal design of one such tool, a loan-to-value (LTV) limit, and its implications for...

The paper tests three hypotheses concerning foreign equity investment in the presence of liquidity risk. First, the FDI-to-FPI price differential is negatively related to liquidity risk (the “Price Discount Hypothesis"). The idea is that market participants do not know whether the FDI investor...

We design a new experimental framework to study policy interventions to combat secular stagnations and liquidity traps in an overlapping-generations environment where participants form expectations and make real economic decisions. We observe that participants can learn to coordinate on high...

The closed economy macro literature has shown that a liquidity trap can result from the self-fulfilling expectation that future inflation and output will be low (Benhabib et al. (2001)). This paper investigates expectations-driven liquidity traps in a two-country New Keynesian model of a...

The Eurosystem's Public Sector Purchase Programme (PSPP) increased the scarcity of safe assets, which caused significant declines and substantial dispersion in European repo rates. However, banks holding these safe assets benefited from this development: First, using the German security...

When the government issues long-term bonds, the optimal time-consistent fiscal and monetary policy is to consolidate debt in a liquidity trap by increasing taxes and by taming public spending. This prescription is at odds with large deficit-spending undertaken in the US during previous liquidity...

We study interest rates transmission to savings at low and negative rates. Exploiting cohorts of consumers from a data-rich multi-country survey, we show how the strength of interest rate transmission to savings varies with the level of nominal interest rates. This response is positive when...

Implementation lags are one of policymakers' concerns about fiscal policies, as these may reduce their efficacy. Using a standard New Keynesian model with an effective lower bound on the nominal interest rate, we compare the impacts of fiscal stimulus on output across various lengths of...

This paper studies the transmission channels of monetary and macroprudential policies in an open economy framework and evaluates the normative implications for international spillovers and global welfare. An analytical decomposition uncovers the prominent role of expenditure switching for...