We augment a standard macroeconomic model to analyze the effects and limitations of balance sheet policies. We show that the central bank can stimulate real activity by changing the size or the composition of its balance sheet, when interest rate policy is ineffective. Specifically, the central...

We present a simple macroeconomic model with open market operations that allows examining the effects of quantitative and credit easing. The central bank controls the policy rate, i.e. the price of money in open market operations, as well as the amount and the type of assets that are accepted as...

We present a simple macroeconomic model with open market operations that allows examining the effects of quantitative and credit easing. The central bank controls the policy rate, i.e. the price of money in open market operations, as well as the amount and the type of assets that are accepted as...

Blanchard (2005) suggested that active interest rate policy might induce unstable dynamics in highly-indebted economies. We examine this in a dynamic general equilibrium model where Calvo-type price rigidities provide a rationale for inflation stabilization. Unstable dynamics can occur when the...

In this paper, we analyze the relation between interest rate targets and money supply in a (bubble-free) rational expectations equilibrium of a standard cash-in-advance model. We examine lump-sum injections of money aimed to implement interest rate sequences that satisfy interest rate target...

We analytically derive the cyclical effects of fiscal policy shocks in a New Neoclassical Synthesis model. Price stickiness has the consequence that a rise in government demand affects labor demand, while at the same time the usual wealth effect boosts labor supply. The strength of the demand...

We examine how borrowing constraints affect monetary transmission and the trade-off of a welfare maximizing central bank. We develop a sticky price model where money serves as the means of payment and ex-ante identical agents borrow/lend among each other. The credit market is distorted as...

This discussion paper resulted in a publication in the <A href="https://apps.webofknowledge.com/full_record.do?product=UA&search_mode=GeneralSearch&qid=5&SID=T2lPmvB33HytcbnHQmV&page=1&doc=2">'IMF Economic Review'</A>, 2014, 62(2), 261-287.<P> We analyse the impact of interactions between monetary and fiscal policy on macroeconomic stability. We find that in the presence of sovereign default beliefs a monetary policy, which aims to...</p></a>

Blanchard (2005) suggested that active interest rate policy might induce unstable dynamics in highly-indebted economies. We examine this in a dynamic general equilibrium model where Calvo-type price rigidities provide a rationale for inflation stabilization. Unstable dynamics can occur when the...

We develop a macroeconomic framework where money issupplied against only few eligible securities in open marketoperations. The relationship between the policy rate,expected inflation and consumption growth is affected bymoney market conditions, i.e. the varying liquidity value ofeligible assets...