Inflation can “grease†the wheels of the labor market by relaxing downward wage rigidity but it can also increase uncertainty and have a negative “sand†effect. This paper studies the grease effect of inflation by looking at whether the interaction between inflation and labor...

This paper characterizes, empirically, the conduct of monetary policy in a small open economy. In particular, using as a case study the Chilean inflation targeting experience, we assess the role of the exchange rate in the determination of the interest rate. We conclude that Chile has adopted...

The present paper is related to the recent discussion about the efficiency of the Reserve Federal Bank on investment decisions. Our aim is not to propose an optimal policy rule but rather to appreciate and to understand the link between the monetary interventions of the FED and capital...

This paper uses a two-country, monetary general equilibrium model with imperfect competition to study the optimal rate of inflation in an open economy. In contrast with the closed economy literature, when policy is set non-cooperatively in the open economy, the optimality of the Friedman rule --...

To date the cointegrating properties and the regime-switching behavior of the term structure are two separate strands of the literature. This paper integrates these lines of research and introduces regime shifts into a cointegrated VAR model. We argue that the short-run dynamics of the...

In times of low-inflation, conventional monetary policy is perpetually exposed to the risk of being caught by the liquidity trap. As a part of a pre-emptive monetary policy to avoid the liquidity trap, many economists have pointed out that this risk can be possibly circumvented by targeting a...

Using a nonlinear structural VAR approach, we estimate the effects of exogenous monetary policy shocks in the presence of a zero lower bound constraint on nominal interest rates and examine the impact of such a constraint on the effectiveness of counter-cyclical monetary policies based on the...

Can active Taylor rules (i.e. monetary rules where the nominal interest rate responds more than proportionally to inflation) deliver global equilibrium uniqueness in small open economies? By studying the local and global dynamics of a standard small open economy we point out the misleading...

This paper surveys the economic literature on simple policy rules and analyzes econometric methods used to estimate them, emphasizing effects of model misspecification. We draw attention to inconsistencies in evaluation of the rules and implications for policy advice, which is commonly done...

This paper evaluates the performance of simple monetary policy rules in a calibrated model for the Chilean economy. The monetary regimes considered are: exchange rate peg, money peg, inflation targeting, nontradable inflation targeting, and a Taylor rule. We develop a small open economy model...