I have a number of major strands of current research - all on the margin between macroeconomics and finance.

 

Like many, I am trying to understand the what role money and banking can play in DSGE models.  Some slides of a recent presentation examining the efficacy of monetary policy with balance sheet effects of banks is available here: Bank Reserves and Monetary Policy.  This work is in progress with Luisa Corrado, Sean Holly at Cambridge on money and the external finance premium and Germana Corrado at Tor Vergata on consumption and housing dynamics and also with my PhD students Jack Meaning and Eddie Gerba at Kent.  My colleague, Katsuyuki Shibayama, is working with me on developing a model of interbank lending markets in a DSGE model based on a model of inventory management.  With James Warren, I am looking the role of investment in explaining the UK business cycle. Overall this work essentially studies the mechanisms by which credit markets can provide both a source and amplification channel for aggregate fluctuations.  

 

Secondly, I am working to understand yield curve dynamics.  I have a number of papers in progress but here are the slides of a note assessing a typical ad hoc model: Macroeconomic and the Yield Curve.  This work has direct policy implications now that it is accepted that the zero lower bound for policy rates can bite and that at this time we all discovered that both debt issuance and non-standard monetary policies have to pay careful attention to the yield curve.  I will give a Summer School for PhD students on macro-finance yield curves in 2011.  My PhD student, Alex Waters, is source of great support in this work as is Francis Breedon, a former Bank of England colleague, now at Queen Mary and we are jointly assessing the impact of QE on bond yields.

 

Almost as a hobby, given our other obligations, I am also conducting an analysis of the forecasting behaviour of financial market economists.  A recent presentation of herding behaviour is available here: Herding of Market Economists' Forecasts of Economic Indicators.  Along with Hamid Sabourian, I am trying to understand why market economists seem to herd their forecasts around a given median and also anti-herd when they want to signal some information.  It is therefore not clear whether private information from market economists is incorporated into the market prices of even highly liquid assets such as bond futures.  In connected work I am also exploring the role of learning in asset prices with Alexander Mihailov.

 

Finally, I continue to have a keen interest in the development of monetary policy regimes, fostered almost entirely by the wonderful Morris Perlman.  With Elisa Newby, formerly of Fitzwilliam College, Cambridge and for a short time my PhD student and now of the Bank of Finland, we are finally trying to put the events of 1797 to 1821 into theoretical context.  In which we study monetary policy making during the Revolutionary and Napoleonic Wars and try to move away from the simple question of inflationary finance to one where we study how it was that monetary developments maintained some degree of credibility against a background of quite enormous economic and political tension.