Research

1. Central bank balance sheet size, net interest income, and policy rate amplification (JMP)

Abstract:  This paper builds a quantitative New-Keynesian model with a central bank balance sheet, fiscal policy, and a representative financial intermediary facing uncertainty to show how interest rate policy has an additional counter-cyclical fiscal impact via central bank income when reserves are abundant as opposed to scarce. A counterfactual analysis between the US economies with small and large central bank balance sheets of 2005 and 2018 shows that in response to demand, supply, and government spending shocks, the real effects of identical interest rate changes are amplified in the abundant reserves economy. In response to a 1% preference shock, cumulative fluctuations are 4.5% lower in the output gap and 3.4% lower in inflation in the abundant reserves economy.

2. Asymmetric interest rate smoothing and financial development (w/ Scott Abrahams and Isaac Green) 

Abstract: This paper utilizes a panel dataset of central bank policy rates to provide evidence for asymmetric interest rate smoothing of central banks globally. During monetary easing interest rate cycles, central banks achieve the terminal policy rate at a faster pace than interest rate tightening cycles. This asymmetry is robust to real side factors in a Taylor type monetary rule. Policy rate cycles for central banks in countries that have higher levels of financial development display a stronger asymmetric smoothing than central banks in countries with less financial development. This finding provides evidence that central banks are cautious during interest rate tightening cycles to avoid financial stability risks which can have real economic impacts.

1. Estimating the signaling channel of QE [draft coming soon] (w/ Leifei Lyu) 

Abstract: This paper proposes measuring the signaling effects of open-ended quantitative easing programs by using an augmented Taylor rule for a central bank's interest rate policy. Monetary policy regimes are estimated using a Bayesian VAR subject to change-points to conduct a monetary rule ``regime change" statistical test. The period of near zero policy rates (ZLB) and quantitative easing (QE) is found to be a monetary regime change point. The Taylor coefficients are estimated via OLS and time varying VAR. During well-defined QE-programs the Taylor coefficient on the size of the Federal Reserve's balance sheet is statistically insignificant. During open-ended QE-programs in which markets form expectations about balance sheet policy, the magnitude of this coefficient is negative and statistically different from zero.

2. Time consistent deposit insurance  (w/ Gaetano Antinolfi)

3. Fiscal support for exchange rate targets (w/ Joao Hernández)

4. The financial and real impacts of QE, disentangling supply and ``reverse-supply" channels (w/ Julieta Yung)