This paper compares the relative effectiveness of inflation contracts and inflation targets in the presence of uncertainty regarding the central bank’s preferences and the underlying output target. The model explains why discretion may be superior to a delegation solution. We also show that...

In this paper we propose a novel empirical extension of the standard market microstructure order flow model. The main idea is that heterogeneity of beliefs in the foreign exchange market can cause model instability and such instability has not been fully accounted for in the existing empirical...

This paper examines the effect that heterogeneous customer orders flows have on exchange rates by using a new propreitary dataset of weekly net order flow segmented by customer type across nine of the most liquid currency pairs. We make three contributions. First, we investigate the extent to...

Although the real exchange rate - real interest rate (RERI) relationship is central to most open economy macroeconomic models, empirical support for the relationship is generally found to be rather weak. In this paper we reinvestigate the RERI relationship using bilateral real exchange rate data...

In this paper, we re-examine the “PPP Puzzle” using sectoral disaggregated data. Specifically, we first analyse the mean reversion speeds of real exchange rates for a number of different sectors in eleven industrial economies and then focus on relating these rates to variables identified in...

While most Central European countries, realising the inflationary potential of money creation, had by the mid-1990s switched to market instruments based monetary policy, Belarus continued to use money emission, so gaining seigniorage and inflation tax. The productivity of the inflation tax can...

We estimate forward-looking interest-rate reaction functions for the G3 economies and for a group of countries which recently adopted inflation targets. Some significant shifts in the conduct of monetary policy are detected in the G3 countries, especially in the USA and Japan. In contrast with...

An expanding literature articulates the view that Taylor rules are helpful in predicting exchange rates. In a changing world however, Taylor rule parameters may be subject to structural instabilities, for example during the Global Financial Crisis. This paper forecasts exchange rates using such...

This paper revisits the argument that the stabilisation bias that arises under discretionary monetary policy can be reduced if policy is delegated to a policymaker with redesigned objectives. We study four delegation schemes: price level targeting, interest rate smoothing, speed limits and...

In this paper we study the degree of precommitment that is required to eliminate multiplicity of policy equilibria, which arise if the policy maker acts under pure discretion. We apply a framework developed by Schaumburg and Tambalotti (2007) and Debortoli and Nunes (2010) to a standard New...