We construct a PCE-based price index whose weights minimize the welfare costs of nominal distortions: a cost-of-nominal-distortions index. We compute these weights in a multi-sector New Keynesian model, calibrated to match US data on price stickiness, labor shares, and inflation across sectors....

Restaurant prices in the euro area increased dramatically after the introduction of the euro. We show that this increase can be explained by a common menu cost model, extended to include a state-dependent decision of firms on when to adopt the new currency. Two mechanisms drive this result....

The housing boom that preceded the Great Recession was due to an increase in credit supply driven by looser lending constraints in the mortgage market. This view on the fundamental drivers of the boom is consistent with four empirical observations: the unprecedented rise in home prices and...

Abstract. We use a quantitative equilibrium model with houses, collateralized debt and foreign borrowing to study the impact of global imbalances on the U.S. economy in the 2000s. Our results suggest that the dynamics of foreign capital flows account for between one fourth and one third of the...

Abstract. U.S. households' debt skyrocketed between 2000 and 2007, and has been falling since. This leveraging (and deleveraging) cycle cannot be accounted for by the liberalization, and subsequent tightening, of credit standards in mortgage markets observed during the same period. We base this...

U.S. households' debt skyrocketed between 2000 and 2007, and has been falling since. This leveraging (and deleveraging) cycle cannot be accounted for by the relaxation, and subsequent tightening, of collateral requirements in mortgage markets observed during the same period. We base this...

Interest rate decisions by central banks are universally discussed in terms of Taylor rules, which describe policy rates as responding to inflation and some measure of the output gap. We show that an alternative specification of monetary policy, in which the interest rate tracks the Wicksellian...

U.S. households' debt skyrocketed between 2000 and 2007, and has been falling since. This leveraging (and deleveraging) cycle cannot be accounted for by the liberalization, and subsequent tightening, of credit standards in mortgage markets observed during the same period. We base this conclusion...

We use a quantitative equilibrium model with houses, collateralized debt and foreign borrowing to study the impact of global imbalances on the U.S. economy in the 2000s. Our results suggest that the dynamics of foreign capital flows account for between one fourth and one third of the increase in...