#2009-056A "Outside Versus Inside Bonds: A Modigliani-Miller type result for liquidity constrained economies"
by Aleksander Berentsen, and Christopher J. Waller
October 2009

When agents are liquidity constrained, two options exist – sell assets or borrow. We compare the allocations arising in two economies: in one, agents can sell government bonds (outside bonds) and in the other they can borrow (issue inside bonds). More...

#2009-055A "Common Fluctuations in OECD Budget Balances"
by Christopher J. Neely, and David E. Rapach
October 2009

We analyze comovements in four measures of budget surpluses for 18 OECD countries for 1980–2008 with a dynamic latent factor model. More...

#2009-049A "Taylor-Type Rules and Permanent Shifts in Productivity Growth"
by William T. Gavin, Benjamin D. Keen, and Michael R. Pakko
September 2009

This paper examines the impact of a permanent shock to the productivity growth rate in a New Keynesian model when the central bank does not immediately adjust its policy rule to that shock. More...

#2009-048A "The Local Effects of Monetary Policy"
by Neville Francis, Michael T. Owyang, and Tatevik Sekhposyan
September 2009

Previous studies have documented disparities in the regional responses to monetary policy shocks; this variation has been found to depend, in part, on differences in the industrial composition of the regional economies. However, because of computational issues, the literature has often neglected the richest level of disaggregation: the city. More...

#2009-047A "Indirect Taxation and the Welfare Effects of Altruism on the Optimal Fiscal Policy"
by Carlos Garriga, and Fernando Sánchez-Losada
September 2009

This paper analyzes the welfare effects of altruism on the optimal fiscal policy. The existence of positive bequests links present and future generations in the economy. More...

PUBLISHED: Economic Modelling, November 2009, 26(6), pp. 1365-74

#2009-046A "Money and Capital as Competing Media of Exchange in a News Economy"
by David Andolfatto, and Fernando M. Martin
September 2009

Conventional theory suggests that fiat money will have value in capital-poor economies. We demonstrate that fiat money may also have value in capital-rich economies, if the price of capital is excessively volatile. More...

#2009-045B "Saving and Growth under Borrowing Constraints: -- Explaining the “High Saving Rate” Puzzle"
by Yi Wen
September 2009
Revised October 2009

Empirical evidence suggests that fast-growing economies tend to have not only high saving rates but also low interest rates. This evidence is difficult to reconcile with standard explanations about the positive linkages between saving and growth. More...

#2009-044A "Essential Interest-Bearing Money"
by David Andolfatto
September 2009

I examine optimal monetary policy in a Lagos and Wright [A unified framework for monetary theory and policy analysis, J. Polit. Econ. 113 (2005) 463—484] model where trade is centralized and all exchange is voluntary. More...

FORTHCOMING: Journal of Economic Theory

#2009-042A "What happened to the US stock market? Accounting for the last 50 years"
by Michele Boldrin, and Adrian Peralta-Alva
August 2009

The extreme volatility of stock market values has been the subject of a large body of literature. Previous research focused on the short run because of a widespread belief that, in the long run, the market reverts to well understood fundamentals. More...

PUBLISHED: Federal Reserve Bank of St. Louis Review, November/December 2009, 91(6), pp. 627-46

#2009-038A "How Did We Get to Inflation Targeting and Where Do We Go Now? A Perspective From the U.S. Experience"
by Daniel L. Thornton
August 2009

This paper advances the hypothesis that the transition from there-is-little-central-banks-can-do-to-control-inflation to inflation targeting occurred because central banks, especially the Federal Reserve, demonstrated that central banks can control inflation rather than a consequence of marked improvement in the professions understanding of how monetary policy controls inflation. More...

FORTHCOMING: Inflation Targeting Twenty Years On: Past Lessons and Future Prospects. David Cobham, Øyvind Eitrheim, Stefan Gerlach and Jan Qvigstad, (ed.) Cambridge University Press