What is the optimal monetary policy response to tariffs? This paper explores this question within an open-economy New Keynesian model and shows that the optimal monetary policy response is expansionary, with inflation rising above and beyond the direct effects of tariffs. This result holds...

We study market illiquidity in an economy subject to non-fundamental shocks. Asset trading occurs via decentralized one-on-one bargaining. The model has multiple rational expectations equilibria; we associate certain Pareto inferior equilibria with liquidity crises. The government can improve...

We model the competition between digital forms of fiat money and private digital money (PDM). Countries strategically digitize their fiat money -- upgrading existing or launching new payment systems (including CBDCs) -- to enhance adoption and counter PDM competition. A pecking order emerges:...

How should governments structure primary sovereign bond markets when investors face asymmetric uncertainty about default risk and total demand? Standard protocols either use uniform prices for all investors, or price discriminate based on bid prices ("pay as bid"). Uniform pricing encourages...

This paper examines the 2021-2022 global inflation surge and the belated but aggressive monetary policy response to it by advanced economy central banks. Drawing on body of recent empirical research, it identifies three primary drivers of the global inflation surge: supply shocks from pandemic...

We develop a quantitative New Keynesian DSGE model with monopolistic banks to study the macroeconomic effects of introducing a central bank digital currency (CBDC). Households benefit from an expansion of liquidity services and higher deposit rates as bank deposit market power is curtailed,...

This paper examines how central banks can strategically integrate artificial intelligence (AI) to enhance their operations. Using a dual-framework approach, we demonstrate how AI can transform both strategic decision-making and daily operations within central banks, taking the Federal Reserve...

Discussion of the causes of the Great Inflation in the UK during the 1970s has centred around the relative importance of two potential explanations, which we label "bad luck" - the occurrence of unusually large commodity price and supply-side shocks - and "bad policy" reflecting failures in both...

Using 472 FOMC meetings (1969-2019) and the exogenous rotation of voting rights among Reserve Bank presidents, we identify meetings where local economic conditions in voting districts significantly affect the Federal funds target rate (FFR), while those in non-voting districts show no effect....

Unfunded fiscal shocks are a significant source of risk premia in Treasury markets when central banks and governments decide to insulate taxpayers and expose bondholders' wealth to government funding needs. We illustrate this bond risk premium mechanism analytically in a two-agent model...