In this paper, we examine the effect of reserve creation due to the Federal Reserve’s Large-scale Asset Purchase programs on bank lending and risk-taking behavior. In particular, we test the existence of a risk-taking channel that induces banks with higher reserve accumulation due to the...

In this paper, we examine the effect of reserve creation due to the Federal Reserve’s Large-scaleAsset Purchase programs on bank lending and risk-taking behavior. In particular, we test the existence of a risk-taking channel that induces banks with higher reserve accumulation due to the...

An idée fixe of Great Moderation economic policy was that central banks are only effective macroeconomic managers when they are segregated from electoral politics. That idea made a swift transition from radical heterodoxy to commonsensical orthodoxy during the 1980s and proved remarkably...

This paper reframes the standard liquidity trap model by capturing the costly feedback loop between idiosyncratic risk and aggregate demand at the zero lower bound. I first show that a liquidity trap can result from excess demand for precautionary savings in times of high uncertainty. The model...

President Biden signed a $1.9 trillion COVID relief package (the “American Rescue Plan”) on March 11, 2021. Without a corresponding increase in taxes, this plan has set off alarm bells for those concerned about the expansion of government deficits and debt. Mainstream economists have raised...

This paper studies optimal monetary and fiscal policies in an economy à la Lucas and Stokey (1983) and Lagos and Wright (2005) with multiple cash and credit goods. We show that optimal policies are in general time inconsistent due to insufficient number of instruments to influence future...