This paper explores the impacts on an economy of a central bank changing the size and composition of its balance sheet. One of the ways in which such asset purchases could influence prices and demand is via portfolio balance effects. We develop and calibrate a simple OLG model in which...

This paper aims to provide a rigorous analysis of Milton Friedman’s famous parable of the ‘helicopter’ drop of money. A helicopter drop of money is a permanent/irreversible increase in the nominal stock of fiat base money with a zero nominal interest rate, which respects the intertemporal...

The paper analyses the global spillovers of the Federal Reserve’s unconventional monetary policy measures since 2007. First, we find that Fed measures in the early phase of the crisis (QE1), but not since 2010 (QE2), were highly effective in lowering sovereign yields and raising equity markets...

The paper considers three methods for eliminating the zero lower bound on nominal interest rates and thus for restoring symmetry to domain over which the central bank can vary its policy rate. They are: (1) abolishing currency (which would also be a useful crime-fighting measure); (2) paying...

This paper describes the way in which the European Central Bank (ECB), the Federal Reserve and the Bank of England conducted monetary policy since the beginning of the financial crisis, in August 2007. We argue that both quantitative easing - and the other non-standard measures introduced by...

The first part of the paper analyzes the inflationary risks associated with price liberalization, the welfare costs of inflation and the difficulties of East European central banks in pursuing non-inflationary policies. The main obstacles are the low credibility of stabilization policies and a...

Some central banks have a reputation for being secretive. A justification for this behaviour that we find in the literature is that being transparent about operations and beliefs hinders the central bank in achieving the best outcome. In other words, a central bank needs flexibility and...

In the wake of the financial crisis banks are likely to wish to hold far more highly liquid assets than before. Some of those liquid assets are likely to be held in the form of reserves at the central bank. We ask whether the central bank should provide these reserves by purchasing nominal,...

This paper has three parts. Part 1 constructs a classical economic model of inflation, augmented by a complete set of financial markets; I call this the core monetary model. Part 2 develops a series of calibrated examples to illustrate how the core monetary model explains the history of...

This paper compares the effects of conventional monetary policy on real borrowing costs with those of the unconventional measures employed after the target federal funds rate hit the zero lower bound (ZLB). For the ZLB period, we identify two policy surprises: changes in the 2-year Treasury...