This paper derives the optimal monetary-policy rule in a simple model with anchored inflation expectations and an effective lower bound (ELB) on interest rates, assuming a long-run inflation goal of 2%. With fully anchored expectations, the optimal policy is a version of average inflation...

In his 2004 inflation targeting manifesto, Marvin Goodfriend described US monetary policy as implicit inflation targeting and advocated explicit targeting. Summarizing the 1965-2000 US inflation experience, he highlighted the importance of evolving Fed credibility, which accords with our recent...

Since the initial launch of inflation targeting in the early 1990s in New Zealand and a few other countries, inflation targeting has become the predominant monetary policy strategy in large advanced and emerging market economies. Inflation targeting has been remarkably successful in anchoring...

Are unregulated capital flows excessive during a stagflation episode? We argue that they likely are, owing to a macroeconomic externality operating through the economy's supply side. Inflows raise domestic wages through a wealth effect on labor supply and cause unwelcome upward pressure on...

Many central banks whose exchange rate regimes are classified as flexible are reluctant to let the exchange rate fluctuate. This phenomenon is known as "fear of floating". We present a simple theory in which fear of floating emerges as an optimal policy outcome. The key feature of the model is...

This paper examines whether prudential policies help to reduce sovereign bond vulnerability to global spillover risk in ASEAN-4 countries (Indonesia, Malaysia, the Philippines, and Thailand). We measure sovereign vulnerability within a risk connectedness network among sovereign bonds. The direct...

In this paper I analyze the work on exchange rates and external imbalances by University of Chicago faculty members during the university's first hundred years, 1892-1992. Many people associate Chicago's views with Milton Friedman's advocacy for flexible exchange rates. But, of course, there was...

Central banks often face tradeoffs in how their monetary policy decisions impact economic activity (including employment), inflation and the price level. This paper assesses how these tradeoffs have evolved over time and varied across countries, with a focus on understanding the post-pandemic...

The wave of crises that began in 2008 reheated the debate on market deregulation as a tool to improve economic performance. This paper addresses the consequences of increased flexibility in goods and labor markets for the conduct of monetary policy in a monetary union. We model a two-country...

We apply ideas from fiscal federalism to reassess how fiscal authority should be delegated within a monetary union. In a real-economy model with no fiscal externalities, in which local fiscal authorities have an informational advantage about the preferences of their citizens for public spending...