Comment on Gertler, Gilchrist and Natalucci's External Constraints on Monetary Policy and the Financial

Comment on Gertler, Gilchrist and Natalucci, ‘External Constraints on Monetary Policyand the Financial Accelerator’.V.V. Chari, University of Minnesota and Federal Reserve Bank of MinneapolisMydeepestapologiesfornotbeingabletodelivertheseremarksinperson. IamsurethatPhillippe will deliver these comments with elan and will suppress errors in my comments.This paper is afirst class demonstration of the best of modern macroeconomics. We havemoved well beyond quasi-religious discussions of the meaning of involuntary unemploymentto a detailed examination of the quantitative role of various mechanisms to generate andpropagate fluctuations. All the discussion is now about the size of capital’s share, theelasticity of labor supply, the intertemporal elasticity of substitution in consumption, thesize of bankruptcy costs and so on. Macroeconomists are miles ahead of our colleagues inother subdisciplines in the profession and I think it useful to use this fine paper as a way ofpatting ourselves collectively on the back.But, a discussant’s job is to be ornery about even a fine paper. Let me begin with somecomments that are intended to improve the presentation and exposition of the paper.1) The key shock in the paper is a rise in the foreign interest rate, which the authorscorrectlythinkofasariseintheriskpremium. But, thisconnectioncanandshouldbemademuch more explicit. One suggestion is to think about a country-specific tax on borrowingand lending. With such a tax, the ...