Interest rate bounds and fiscal policy

Michael Kumhof Interest Rate Risk Premia and Discretionary Fisical Policy INTEREST RATE RISK PREMIA AND DISCRETIONARY FISCAL POLICY

This paper develops a dynamic stochastic general equilibrium portfolio balance model that accomplishes two objectives. First, it describes a realistic environment in which a central bank can choose an interest rate path independently of the desired path of its nominal anchor. Second, it suggests an explanation for the high average currency risk premia in emerging market interest rates. Our conc...

Global Knowledge, Local Solutions: Interest Rate and Monetary Policy

Fiscal policy and the Term Premium in Real Interest Rate Di¤erentials

This paper seeks to identify the source of the risk premium in real interest rate di¤erentials across European countries. In particular, we examine the link between real interest rate di¤erentials, existing between various European countries and Germany, and domestic ...scal policy as proxied by the Debt/GDP ratios in these countries. Our results provide strong evidence that this variable exert...

Fiscal Policy and the Term Structure of Interest Rates ∗

Macroeconomists want to understand the effects of fiscal policy on interest rates, while financial economists look for the factors that drive the dynamics of the yield curve. To shed light on both issues, we present an empirical macrofinance model that combines a no-arbitrage affine term structure model with a set of structural restrictions that allow us to identify fiscal policy shocks, and tr...

On Interest Rate Policy and Asset Bubbles

In a provocative paper, Gali (2014), showed that a policymaker who raises interest rates because of concerns about a bubble will paradoxically make the bubble bigger. In this paper, we argue Gali’s framework abstracts from the possibility that a policymaker who raises rates might crowd out resources that would have otherwise been spent on the bubble. We show that when we modify Gali’s model to ...