The recent debate over monetary policy strategies concludes that monetary targeting in practice lead to very similar patterns of central bank behaviour. This raises the question why central banks insist on the strategies they use. In this paper, we develop an answer from political economy. After...

This paper discusses how price stability can be defined and how price stability can be maintained in practice. Some lessons for the Eurosystem are also considered. With regard to defining price stability, the choice between price-level stability and low (including zero) inflation and the...

The likely impact of the EMU on the variability and level of employment is analysed. The major conclusions are: (1) Although an inflation-target regime will constrain monetary policy of a non-participant in the EMU, it still leaves considerable scope for exchange rate chages in the case of...

The paper discusses the choice between inflation targeting and monetary targeting as a strategy for the Eurosystem, the actual strategy the Eurosystem announced in the fall of 1998, the framework of the policy decisions appropriate for achieving the goals of the Eurosystem, the role of the...

The optimal weights on indicators in models with partial information about the state of the economy and forward-looking variables are derived and interpreted, both for equilibria under discretion and under commitment. The private sector is assumed to have information about the state of the...

The optimal weights on indicators in models with partial information about the state of the economy and forward-looking variables are derived and interpreted, both for equilibria under discretion and under commitment. An example of optimal monetary policy with a partially observable potential...

Central banks now generally agree that conventional monetary aggregates are of little use as targets or even indicators for monetary policy, owing to the instability of money demand relations in economies with well-developed financial markets. But monetary theory has provided little guidance for...

We examine a central bank's endogenous choice of degree of control and degree of transparency, under both commitment and discretion. Under commitment, we find that the deliberate choice of sloppy control is far less likely under a standard central-bank loss function than reported for a less...

Previous analysis of the implementation of inflation targeting is extended to monetary policy responses to different shocks, consequences of model uncertainty, effects of interest rate smoothing and stabilization, a comparison with nominal GDP targeting, and implications of forward-looking...

The paper demonstrates that policy makers have a precautionary motive to undertake more labour-market reform - and hence attain lower equilibrium unemployment - inside a monetary union than outside. The reason is a desire to reduce the utility cost of variations in employment when asymmetric...