Ramsey models of fiscal and monetary policy with perfectly-competitive product markets and a fixed supply of capital predict highly volatile inflation with no serial correlation. In this paper, we show that an otherwise-standard Ramsey model that incorporates capital accumulation and habit...

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...

Monetary policy reaction functions are compared in a simple optimizing model with one-period nominal stickiness, i.i.d. shocks, and no capital accumulation. The interest rate is the instrument and is either kept constant, "interest rate targeting" for short, or used in targeting one of the...

This paper uses the transcripts from the FOMC meetings to characterize the interactions between policymakers and macro models in the formulation of U.S. monetary policy. We develop a taxonomy of these interactions and present two case studies. The first case focuses on the debate on the choice...

We derive optimal monetary stabilization rules and compare them to simple rules under both full and partial information. The nominal interest rate is the instrument of monetary policy. Special attention is devoted to inflation targeting and nominal-income-growth targeting. We use an...

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"...

The considerable amount of research in recent years on New Keynesian, open-economy models -- models with nominal price rigidities and intertemporally maximizing agents -- has yielded fresh insights for what Alan Blinder has called the "dark art" of making monetary policy. The literature has made...

remarks at an economics luncheon co-sponsored by the Federal Reserve Bank of San Francisco (Seattle Branch) and the University of Washington, Seattle, Washington