I analyze how the introduction of financial frictions can affect the trade-off between output stabilization and inflation stability and whether, in the presence of financial frictions, the optimal outcome can be realized or approached more closely if monetary policy is allowed to react to...

SUERF – The European Money and Finance Forum, the Deutsche Bundesbank and the Institute for Monetary and Financial Stability (IMFS) took the opportunity of the first anniversary of this new institution to organise a joint conference in Berlin on 8-9 November 2011. The purpose of this event was...

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...

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 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...

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...

Evidence on the interdependency between monetary policy and the state of the banking system is scarce. We suggest an integrated micro-macro approach with two core virtues. First, we measure the probability of bank distress directly at the bank level. Second, we integrate a microeconomic hazard...