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...

During the turbulent 1970s and 1980s the Bundesbank established an outstanding reputation in the world of central banking. Germany achieved a high degree of domestic stability and provided safe haven for investors in times of turmoil in the international financial system. Eventually the...

Recently, a number of studies have made an attempt to deal with the key issue of the incompleteness of information available to the central bank when taking its monetary policy decisions. This study adds to this literature by tackling the problem with regard to the euro area. The analysis is...

We consider the properties of two monetary policy rules (monetary targeting, Taylor-type interest rate rule) in an intertemporal equilibrium model with capital accumulation and two outside assets (government bonds, fiat money). The paper shows that the long-run behaviour of the economy depends...

As of today, estimating interest rate reaction functions for the Euro Area is hampered by the short time span since the conduct of a single monetary policy. In this paper we circumvent the common use of aggregated data before 1999 by estimating interest rate reaction functions based on a panel...

Reserve requirements are a prominent policy instrument in many emerging countries. The present study investigates the circumstances under which reserve requirements are an appropriate policy tool for price or financial stability. We consider a small open economy model with sticky prices,...

Monetary authorities in emerging markets are often reluctant to raise interest rates when dealing with credit booms driven by capital inflows, as they fear that an increase attracts even more capital and appreciates the currency. A number of countries therefore use reserve requirements as an...

This paper re-investigates the implications of monetary policy rules on changes in exchange rate, in a risk-adjusted, uncovered interest parity model with unrestricted parameters, emphasizing the importance of modeling market expectations of monetary policy. I use consensus forecasts as a proxy...

We study the role of monetary policy when asset-price bubbles may form due to herd behavior in investment in an asset whose return is uncertain. To that aim, we build a simple general-equilibrium model whose agents are households, entrepreneurs, and a central bank. Entrepreneurs receive private...

This paper studies the social value of information about the future when agents are rationally inattentive. In a stylized OLG model of inflation the central bank (CB) can set money supply in response to the current price. The CB has perfect foresight about the future T shocks and releases this...