Long-term real interest rates across the world have fallen by about 450 basis points over the past 30 years. The co-movement in rates across both advanced and emerging economies suggests a common driver: the global neutral real rate may have fallen. In this paper we attempt to identify which...

We explore the role of ‘dollar shortage' shocks and central bank swap lines in a two-country New Keynesian model with financial frictions. Domestic banks issue both domestic and foreign currency debt and lend in domestic currency. Foreign currency-specific funding shocks, which are amplified...

In this paper, we analyse the effects of a shock to global financial uncertainty and risk aversion on real economic activity. To this end, we extract a common factor from the realised volatilities of about 1,000 risky asset returns from around the world. We then study how shocks to the factor...

This paper evaluates whether recent advances in modelling the extensive margin of exports contribute to our understanding of export fluctuations over the business cycle. Using US and euro-area data, we estimate a general equilibrium model in which the extensive margin of exports varies over the...

This paper quantifies the individual, aggregate and welfare effects of the Earned Income Tax Credit (EITC) in the United States. In particular, we analyse the labour supply and saving responses to changes in tax credit generosity and their implications for prices and welfare. Our results show...

In the past decade or so, a number of central banks have purchased assets financed by the creation of central bank reserves as a tool for loosening monetary policy – a policy often known as ‘quantitative easing' or ‘QE'. The first half of the paper reviews the international evidence on the...

Macroeconomic modelling has been under intense scrutiny since the Great Financial Crisis, when serious shortcomings were exposed in the methodology used to understand the economy as a whole. Criticism has been leveled at the assumptions employed in the dominant models, particularly that economic...

Over the past four decades, real interest rates have risen then fallen across the industrialised world. Over the same period, nominal investment rates fell, while house prices and household debt ratios rose. I explain these four trends with a fifth — the widespread fall in the relative price...

In this paper we use a stylised three-country model to analyse how the transmission of US shocks to Europe might be affected by Asia's choice of exchange rate regime. We find that if Asia decides to peg her exchange rate to the dollar, the impact of US shocks on European output and inflation is...

The purpose of this paper is to examine how important an improvement in global monetary policy might be for the macroeconomic performance of a small open economy such as the United Kingdom. Our paper contributes to the literature by proposing a new methodology to treat indeterminate solutions...