This paper examines monetary policy in a currency union whose member countries exhibit heterogneous rates of limited asset markets participation (LAMP).  As a result risk sharing among member countries is imperfect and the monetary transmission mechanism can differ across countries.  In the...

We analyse the costs of a monetary union in West Africa by means of asymmetric aggegate demand and aggregate supply shocks. Previous studies have estimated the shocks with the VAR model. We discuss the limits of this approach and apply a new technique based on the dynamic factor model. The...

We argue that endogenous and anticipated movements in interest rates lead to underestimates of the speed and magnitude of the exchange rate response to monetary policy. Employing the Romer and Romer (2004) exogenous monetary policy shock measure, we find that the effect of a one percentage point...

The theory of policy credibility has been influential in both the design of monetary policymaking institutions and in the implementation of policy. In particular, the idea that `reputation` is important has been widely accepted. However, careful attention to its assumptions and implications of...

Major changes in the Norwegian exchange rate have often coincided with large fluctuations in the price of crude oil. Previous empirical studies have however suggested a weak and ambiguous relation between the oil price and the exchange rate. In contrast to these studies, this paper explores the...

Unrestricted reduced form vector autoregressive (VAR) models have become a dominant research strategy in empirical macroeconomics since Sims (1980) critique of traditional macroeconometric modeling. They are however subjected to the curse of dimensionality. In this paper we propose...

A well-known time-inconsistency problem hinders optimal decision-making when policymakers are constrained in their pesent choices by expectations of future outcomes.  The time-inconsistency problem is caused by differences in the preferences of policymakers who exist at different points in...

Much recent monetary policy literature has searched for structural models suitable for policy analysis that are both based on optimising microfoundations and consistent with the data, especially observed persistence in inflation and output. Few models do well on both criteria. We derive an...