A discretionary policymaker responds to the state of the economy each period. Private agents' current behavior determines the future state based on expectations of future policy. Discretionary policy thus can lead to dynamic complementarity between private agents and a policymaker, which in turn...

In a canonical staggered pricing model, monetary discretion leads to multiple private sector equilibria. The basis for multiplicity is a form of policy complementarity. Specifically, prices set in the current period embed expectations about future policy, and actual future policy responds to...

Monetary policy is concerned with the ultimate goals of price stability, full employment, and economic growth, and with the short-run stability of financial markets.

During the 1970's short-term interest rates have exhibited extreme variability by recent historical standards.

Traditionally, central banks seeking to stabilize general prices have followed policies similar to those advocated by Knut Wicksell: when prices are higher that desired, raise interest rates to exert downward pressure on prices, and conversely. Despite the historical predominance of interest...

This article discusses a technical aspect of the Federal Reserve's monetary targeting procedure that has come to be known as "base drift." The Fed has been announcing larger ranges for the growth of M1 and other monetary aggregates since 1975. These ranges have been expressed in terms of rates...