Browsing by Author "Tristani, Oreste"
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- Monetary policy and the financing of firmsPublication . Fiore, Fiorella de; Teles, Pedro; Tristani, OresteHow should monetary policy respond to changes in financial conditions? We consider a simple model where firms are subject to shocks which may force them to default on their debt. Firms' assets and liabilities are nominal and predetermined. Monetary policy can therefore affect the real value of funds used to finance production. In this model, allowing for inflation volatility in response to aggregate shocks can be optimal; the optimal response to adverse financial shocks is to lower interest rates and to engineer some inflation; and the Taylor rule may implement allocations that have opposite cyclical properties to the optimal ones.
- The monetary financing of a large fiscal shockPublication . Teles, Pedro; Tristani, OresteMotivated by the surge in debt levels through the pandemic crisis, we revisit the issue of the optimal financing of public debt. In contrast to existing results, we find that the optimal response of inflation to a large increase in debt levels is a gradual, significant and long-lasting rise in inflation. Our conclusion is due to a different assumption on the source of nominal rigidities. While the literature has focused on sticky prices, of either the Calvo (1983) or Rotemberg (1982) type, we consider sticky plans as in the sticky information set up of Mankiw and Reis (2002) . A crucial feature of our results is that a significant inflation response is desirable only if the maturity of public debt is (realistically) long.