We consider the impact of pessimism on monetary policy within a model with backward looking expectations and persistence in the dynamics of output and inflation. We show that pessimistic monetary authorities move their instruments to hedge against the worst economic shocks. With respect to their...

The contribution of this paper is twofold. First, we provide empirical evidence on the existence of a risk-taking channel in the US economy. By identifying a Bayesian VAR through sign restrictions, we find that an expansionary monetary policy shock causes a persistent increase in proxies for...

This paper characterises rules-based fiscal policy setting. Basically, we translate a standard monetary policy rule into a simple fiscal policy rule. We then infer on fiscal policymakers' reaction coefficients by testing the rule with GMM. Interaction is also tested directly by the inclusion of...

A central issue of monetary policy analysis is the specification of monetary policy shocks. In a structural vector autoregressive setting there has been some controversy about which restrictions to use for identifying the shocks because standard theories do not provide enough information to...