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Academic Programs

Jan Ertl’s Paper:  This paper examines the use of elevated hurdle rates as a disciplinary tool in corporate investment decisions. I first show how managerial optimism can lead to suboptimal decisions in a basic investment framework. Our theoretical model demonstrates that elevated hurdle rates can mitigate these biases and enhance firm outcomes through investment discipline. Ongoing and future work will empirically test these predictions using earnings call data and financial metrics to assess the relationship between managerial narratives, hurdle rates, and firm performance.

Yinjie Yu’s Paper: This paper studies the optimal monetary policy with multiple instruments in a New-Keynesian framework when the central bank has imperfect information of the underlying shocks. The central bank is biased towards certain instruments depending on the shocks’ distribution, transmission elasticities, and structure of the information errors. For example, with asymmetric credit shock, the central bank optimally uses balance sheet policy more aggressively during significant negative output gaps, while primarily relying on policy rate hikes to cool down economic booms, leading to a persistently larger balance sheet.