First, we show that the interest rate on Federal funds is extremely informative about future movements of real macroeconomic variables, more so than monetary aggregates or other interest rates. Next, we argue that the reason for this forecasting is that the funds rate sensitively records shocks...

The propositions that monetary expansion lowers short-term nominal interest rates (the liquidity effect), and that monetary policy does not have long-run real effects (long-run neutrality), are widely accepted, yet to date the empirical evidence for both is mixed. We reconsider both propositions...

A number of interest rates and interest rate spreads have been found to be useful in prediction the course of the economy. We compare the predictive power of some of these suggested interest rate variables for nine indicators of real activity and the inflation rate. Our results are consistent...

This paper develops a dynamic general equilibrium model that is intended to help clarify the role of credit market frictions in business fluctuations, from both a qualitative and a quantitative standpoint. The model is a synthesis of the leading approaches in the literature. In particular, the...

Proposals for 'inflation targeting' as a strategy for monetary policy leave open the important operational question of how to determine whether current policies are consistent with the long-run inflation target. An interesting possibility is that the central bank might target current...

In recent years a number of industrialized countries have adopted a strategy for monetary policy known as `inflation targeting.' We describe how this approach has been implemented in practice and argue that it is best understood as a broad framework for policy, which allows the central bank...

Although its primary ultimate objective is price stability, the Bundesbank has drawn a distinction between its money-focus strategy and the inflation targeting approach recently adopted by a number of central banks. We show that, holding constant the current forecast of inflation, German...

The 'credit channel' theory of monetary policy transmission holds that informational frictions in credit markets worsen during tight- money periods. The resulting increase in the external finance premium--the difference in cost between internal and external funds-- enhances the effects of...

Extending the approach of Bernanke and Blinder (1992), Strongin (1992), and Christiano, Eichenbaum, and Evans (1994a, 1994b), we develop and apply a VAR-based methodology for measuring the stance of monetary policy. More specifically, we develop a 'semi-structural' VAR approach, which extracts...

Using a simple case study approach. this paper compares the conduct and performance of monetary policy in six Industrialized countries since the breakup of the Bretton Woods system. Our purpose is to develop fruitful hypotheses that might usefully be explored in subsequent, more formal research....