Research

1. Central bank balance sheet size, net interest income, and policy rate amplification (R&R - Journal of Money, Credit and Banking) 

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 stability (w/ Scott Abrahams and Isaac Green) 

Abstract: Central banks mechanically lower policy rates at a faster pace than they raise them. Using a panel dataset of policy rates from 38 countries, this paper shows that during easing cycles, central banks reach terminal rates more quickly than during tightening cycles. This asymmetry persists after controlling for inflation and output gaps in Taylor-type rules, suggesting it reflects a policy preference rather than responses to economic fundamentals. We find that this asymmetry is more pronounced in countries with higher financial stability risks as measured by bank capital ratios, net interest margins, and credit-to-GDP ratios. Our results suggest an implicit interaction between monetary policy and financial stability mandates that is consistent with policy concerns about macro-financial linkages.