In this paper, we investigate the dynamic response of stock market volatility to changes in monetary policy. Using a vector autoregressive model, our findings reveal a significant and asymmetric response of stock returns and volatility to monetary policy shocks. Although the increase in the...

Using new household-level data, we quantitatively assess the roles that job loss, negative equity, and wealth (including unsecured debt, liquid assets, and illiquid assets) play in default decisions. In sharp contrast to prior studies that proxy for individual unemployment status using regional...

This paper characterizes jointly optimal default and exchange-rate policy in a small open economy with limited enforcement of debt contracts and downward nominal wage rigidity. Under optimal policy, default occurs during contractions and is accompanied by large devaluations. The latter inflate...

Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian literature is that the answer is yes. New evidence provided here suggests that the answer is often no. For a broad range of...

Conventional economic policy models focus only on selected elements of the central bank balance sheet, in particular monetary liabilities and sometimes foreign reserves. The canonical model of an "independent" central bank assumes that it chooses money (or an interest rate) unconstrained by a...

Motivated by the dollarization debate in Mexico, we estimate an identified vector autoregression for the Mexican economy using monthly data from 1976 to 1997, taking into account the changes in the monetary policy regime which occurred during this period. We find that 1) exogenous shocks to...

We explore two popular approaches to empirical analysis of monetary policy: the New Keynesian and the identified vector autoregression approaches. Stylized models of private behavior coupled with simple rules describing policy behavior characterize New Keynesian work. Vector autoregressions...