Evidence from vector autoregressions indicates that the impact of interest rate shocks on macroeconomic aggregates can substantially be affected by the so-called cost channel of monetary transmission. In this paper we apply a structural approach to examine the relevance of the cost channel for...

This paper presents a business cycle analysis of monetary policy shocks measured by disturbances to open market operations, i.e. the ratio of open market papers to non-borrowed reserves. We find empirical evidence for the usefulness of this policy measure, as it predicts significant declines in...

This paper examines how money demand induced real balance effects contribute to the determination of the price level, as suggested by Patinkin (1949,1965), and if they affect conditions for local equilibrium uniqueness and stability. There exists a unique price level sequence that is consistent...

In the empirical literature, monetary policy shocks are commonly measured as an innovation to a short-term nominal interest rate. In contrast, the majority of monetary business cycle models treats a broad monetary aggregate as the central bank's policy measure. We try overcome this disparity and...

This paper reexamines the role of open market operations for short-run effects of monetary policy. Money demand is induced by a cash constraint, while the central bank supplies money exclusively in exchange for securities, discounted with a short-run nominal interest rate. We consider a legal...

This paper presents a business cycle model with financial intermediation encompassing the conventional New Keynesian model. Households’ financial wealth comprises cash and interest bearing deposits. When deposits provide transaction services, real broad money, which is predetermined, affects...

This paper assesses the transmission of fiscal policy shocks in a New Keynesian framework where government expenditures contribute to aggregate production. It is shown that even if the impact of government expenditures on production is small, this assumption helps to reconcile the models'...

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...

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 study the consequences of non-neutrality of government debt for macroeconomic stabilization policy in an environment where prices are sticky. Assuming transaction services of government bonds, Ricardian equivalence fails because public debt has a negative impact on its marginal rate of return...