Mark Gertler (economist)

Financial accelerator

In a 1989 paper, Bernanke and Gertler showed that when borrowers' net worth falls, agency costs of external finance rise, reducing investment and amplifying downturns.^[5] With Simon Gilchrist, they embedded this mechanism in a quantitative dynamic stochastic general equilibrium model in "The Financial Accelerator in a Quantitative Business Cycle Framework" (1999), which became a standard reference for analyzing the interaction of financial conditions and the business cycle.^[6] Related empirical work with Gilchrist documented that small manufacturing firms respond more sharply than large firms to monetary tightening.^[7]

The BBVA Foundation Frontiers of Knowledge Award committee credited this line of research with defining the standard model for business cycle and monetary policy analysis and noted that its relevance became clear after the 2008 financial crisis.^[3]

Monetary policy rules

With Richard Clarida and Jordi Galí, Gertler estimated forward-looking monetary policy reaction functions for the United States and found that the Federal Reserve's response to expected inflation became substantially more aggressive after Paul Volcker's appointment in 1979.^[8] Their 1999 survey "The Science of Monetary Policy: A New Keynesian Perspective" set out the New Keynesian framework for policy analysis and is among the most cited papers in monetary economics.^[9]

Gertler and Bernanke published "Should Central Banks Respond to Movements in Asset Prices?" in the American Economic Review in 2001, five years before Bernanke replaced Alan Greenspan as Chairman of the Federal Reserve Board of Governors. The paper, which deals retrospectively with the stock market bubble of the Internet years, has become a widely cited policy paper in economics. Bernanke and Gertler argue that a central bank committed to flexible inflation targeting should respond to asset prices only insofar as they affect the inflation outlook, and that a more aggressive approach of managing "asset price bubbles" would be ineffective or counterproductive.^[10]

Banking and the financial crisis

After 2008, Gertler's work turned to models of financial intermediaries. With Nobuhiro Kiyotaki he developed a framework in which bank balance sheet constraints transmit shocks to the real economy and analyzed unconventional monetary policy and bank runs.^[11][12] With Peter Karadi he built a model of unconventional monetary policy in which the central bank lends directly when private intermediation breaks down, providing a framework for evaluating the large-scale asset purchases undertaken by central banks during the crisis.^[13]

Monetary policy transmission

In "Monetary Policy Surprises, Credit Costs, and Economic Activity" (2015), Gertler and Karadi introduced an approach to identifying monetary policy shocks that uses high-frequency movements in interest rate futures around Federal Reserve announcements as external instruments in a structural vector autoregression. The method avoids the timing restrictions of conventional identification schemes and captures both surprises to the current policy rate and forward guidance about its future path. They found that a monetary tightening raises credit spreads, including term premia and the excess bond premium, and that these credit cost responses amplify the effect of policy on output and inflation well beyond what a standard model with only a short-rate channel would predict.^[14] The paper received the AEJ: Macroeconomics Best Paper Prize for 2015.^[1] The high-frequency external-instrument approach has become one of the standard methods for estimating the effects of monetary policy in empirical macroeconomics.

Labor markets and wage rigidity

With Antonella Trigari, Gertler developed a model of unemployment fluctuations in which wages are set by staggered multi-period Nash bargaining, so that new hires bargain against a backdrop of existing wage contracts. The resulting wage rigidity lets a search-and-matching model generate realistic volatility in unemployment and vacancies in response to productivity shocks.^[15] With Luca Sala and Trigari, he embedded this labor market structure in an estimated New Keynesian model.^[16] Later work with Christopher Huckfeldt and Trigari used matched employer-employee data to show that the high measured cyclicality of new-hire wages largely reflects composition effects from job-to-job movers, so that wages for new hires from unemployment are about as rigid as wages for existing workers.^[17] In a 2026 paper, the same authors revisited the role of temporary layoffs in the business cycle. They documented a destabilizing "loss-of-recall" effect, in which workers on temporary layoff lose their jobs permanently, and used a structural model to show that the Paycheck Protection Program generated sizable employment gains during the COVID-19 recession in part by reducing loss-of-recall.^[18]

Inflation dynamics

Gertler's early work on inflation, with Jordi Galí, estimated a structural New Keynesian Phillips curve using real marginal cost rather than the output gap as the driving variable and found that it fits U.S. inflation well.^[19]

His recent work returns to this question using firm-level data. With Luca Gagliardone, Simone Lenzu and Joris Tielens, he used quarterly micro data on prices and costs from Belgian manufacturing firms to estimate the slope of the marginal-cost-based Phillips curve from the bottom up. They found the slope to be several times steeper than conventional output-gap-based estimates, and argued that the apparent flatness of the standard Phillips curve reflects a weak link between output gaps and marginal costs rather than insensitivity of prices to costs.^[20] A companion paper examines how cost-price pass-through changes during inflation surges.^[21] With Gagliardone, he developed a quantitative New Keynesian model to assess how oil price shocks and the monetary policy response contributed to the 2021–2022 inflation surge, finding that both oil shocks and policy accommodation played important roles.^[22]