This paper documents the impact of U.S. monetary policy announcement surprises on foreign equity indexes, short- and long-term interest rates, and exchange rates in 49 countries. We use two proxies for monetary policy surprises: the surprise change to the current target federal funds rate...

This paper explores issues that arise in implementing monetary policy under conditions of sustained price stability. We discuss several issues that concern the selection of a central bank's inflation objective under such conditions: price measurement; the behavior of other key variables,...

Changes in monetary policy are typically implemented gradually, an empirical observation known as interest-rate smoothing. We propose the explanation that time-non-separable preferences may render interest-rate smoothing optimal. We find that when consumers have "catching-up-with-the-Joneses"...

We consider monetary-policy rules with inflation-rate targets and interest-rate or money-growth instruments using a flexible-price, perfect-foresight model. There is always a locally-unique target equilibrium. There may also be below-target equilibria (BTE) with inflation always below target and...

This paper studies when and by how much the Fed and the ECB change their target interest rates. I develop a new nonlinear bivariate framework, which allows for elaborate dynamics and potential interdependence between the two countries, as opposed to linear feedback rules, such as a Taylor rule,...

When the nominal interest rate reaches its zero lower bound, credibility is crucial for conducting forward guidance. We determine optimal policy in a New Keynesian model when the central bank has imperfect credibility and cannot set the nominal interest rate below zero. In our model, an...

This paper reviews the available evidence and previous research on potential effects of financial globalization, that is, the international integration of financial markets. In particular, we address the questions: Has financial globalization materially increased the influence of external...

A simple stochastic equilibrium structure is used to study the implications of monetary and fiscal policy interactions for government intertemporal budget balance. Existence and uniqueness of monetary equilibria are shown to depend on parameters of policy rules. The paper derives closed form...

This paper provides an evaluation of the effectiveness of inflation targeting in four industrial countries --New Zealand, Canada, the United Kingdom, and Sweden --focussing on the recent period of economic recovery. Evidence drawn from fmancial market data suggests that credibility of their...