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,...

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,...

I test for the existence of a bank lending channel of monetary policy transmission. I identify bank lending channel effects with a simple model of bank behavior incorporating long-term customer relationships. The model suggests that when a large fraction of bank assets is held in loans,...

The Federal Reserve (Fed) has maintained a general trend toward increased transparency and gradualism. This paper investigates the implications of these historical developments for the anticipation of monetary policy actions and adjustment of interest rates. In a theoretical framework, we...

This paper explores Knightian model uncertainty as a possible explanation of the considerable difference between estimated interest rate rules and optimal feedback descriptions of monetary policy. We focus on two types of uncertainty: (i) unstructured model uncertainty reflected in additive...

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...

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...

We consider what, if any, relationship there is between monetary aggregates and inflation, and whether there is any substantial reason for modifying the current mainstream mode of policy analysis, which frequently does not consider monetary aggregates at all. We begin by considering the body of...