"Interest on Reserves and Monetary Policy Transmission" (Job Market Paper)
The Federal Reserve started paying interest on reserves (IOR) in October 2008. Recent theoretical research suggests that paying interest on reserves, above the federal funds rate, creates the possibility for multiple equilibria. In one equilibrium, the interbank lending market effectively shuts down and banks start holding large quantities of excess reserves. In this paper, I investigate the effects of monetary policy when the Federal Reserve pays an interest rate on reserves above the federal funds rate, via the portfolio balance channel. The decision of banks to hold large excess reserves can weaken the impact of the Federal Reserve’s open market operations (OMOs). Using a structural vector autoregression (SVAR), I show that the effects of OMOs on output and the price level were muted within this higher interest-on-reserves period. Interpreting these results, I argue that by paying a sufficiently high IOR, the efficacy of the portfolio balance channel was weakened, thus limiting the effectiveness of monetary policy.
"Beyond Alchian and Klein: A Modern Re-evaluation of Inflation Measurement" (with Joshua R. Hendrickson)
Five decades ago, Armen Alchian and Benjamin Klein, in their seminal work, emphasized that traditional price indices, which focus on current consumption and output prices, were insufficient for capturing the full effects of monetary impulses. They argued that a more comprehensive measure should include asset prices and presented evidence by examining the relationship between the demand for “real” money and various financial metrics. This paper re-examines this claim by extending the data and using modern econometric techniques and monetary measurements to evaluate the robustness of the results. We find that the coefficients on the vector of interest rates are statistically significant in the short run for different samples, suggesting that the commonly used price indices are still unable to capture changes in asset prices in the short run. Thus, their usage may lead to an underestimation of real money demand, and by extension bias the impact of monetary policy.
"Optimal Monetary Policy According to THANK: Commitment Limitations and the Cost Channel" (with Ronald Mau)
"Financial Fragility, Partial Sunspots, and Bank Liquidity Choices" (with John Conlon)
"Financial Spreads as Indicators of Future Inflation and Output: Revisited" (with Gideon Appiah and Richmond Woblesseh)