An optimizingmodel, with a flexible-price sector and a sticky-price sector, ispresented to analyze the effects of relative-price changes on inflation fluctuations. Therelative price of the flexible-price good represents a shift parameter of the NewKeynesian Phillips curve. The optimal monetary...

This paper studies an advantage of commitment over discretion when a central bankobserves only noisy measures of current inflation and output, in the context of an optimizingmodel with nominal-price stickiness. Under a commitment regime, if current policy turns outto be too expansionary...

I present a structural econometric analysis supporting the hypothesis that money is still relevant for shaping inflation and output dynamics in the United States. In particular, I find that real money balance effects are quantitatively important, although smaller than they used to be in the...

We study a model with repeated moral hazard where financial contracts are not fully indexed to inflation because nominal prices are observed with delay as in Jovanovic & Ueda (1997). More constrained firms sign contracts that are less indexed to the nominal price and, as a result, their...

This paper studies the importance of money for inflation in the euro area. An inflation equation is derived from a small model that combines the supply and demand for money with a Phillips curve and the assumption that inflation expectations develop adaptively. The model's solution attributes an...

In this paper we incorporate a labor market with matching frictions and wage rigidities into the New Keynesian business cycle model. In particular, we analyze the effect of a monetary policy shock and investigate how labor market frictions affect the transmission process of monetary policy. The...

This paper examines the methods used by the Bank of Japan for the estimation of the output gap. Attention is paid to the real-time estimation problem. After reviewing the evolution of output gap estimation at the Bank, I discuss advantages and disadvantages of the various output gap measures....

In this paper an anti-cyclical fiscal policy rule is introduced into a dynamic stochastic general equilibrium model with New-Keynesian features. The rule allows the deficit to deviate from target in proportion to the impact of automatic stabilisers while any additional impact on the deficit, for...

In this paper we estimate a simple New-Keynesian DSGE model with German data for the sample period 1970:q1 to 1998:q4. Contrary to a number of recent similar papers estimated with US and euro-area data, we find that real money balances contribute significantly to the determination of inflation...

Global liquidity expansion has been very dynamic since 2001. Contrary to conventional wisdom, high money growth rates have not coincided with a concurrent rise in goods prices. At the same time, however, asset prices have increased sharply, significantly outpacing the subdued development in...