Can the central bank of a small open economy be mandated with the maintenance of both fixed exchange rates and monetary independence, and still succeed in the long term? Looking at a pioneering experiment put in place by the National Bank of Belgium, this article shows how foreign exchange...

Modern central banks do not only announce the interest rate decision, they also communicate a "story" that explains why they reached the particular decision. When decisions are made by a committee, it could be difficult to find a story that is both consistent with the decision and representative...

If central banks value the ex-post accuracy of their forecasts, previously announced interest rate paths might affect the current policy rate. We explore whether this "forecast adherence" has influenced the monetary policies of the Reserve Bank of New Zealand and the Norges Bank, the two central...

There are two main approaches to modelling monetary policy; simple instrument rules and optimal policy. We propose an alternative that combines the two by extending the loss function with a term penalizing deviations from a simple rule. We analyze the properties of the modified loss function by...

How do monetary policy committee (MPC) members form their views about the appropriate interest rate? To what extent do they change their minds during the deliberations in the interest rate meeting? How important is the Chairman? The theoretical literature makes assumptions about these issues. We...

We employ information-gap decision theory to derive a robust monetary policy response to Knightian parameter uncertainty. This approach provides a quantitative answer to the question: For a specified policy, how much can our models and data err or vary, without rendering the outcome of that...

We use Bayesian methods to estimate the preferences of the US Federal Reserve by assuming that monetary policy is performed optimally under commitment since the mid-sixties. For this purpose, we distinguish between three subperiods, i.e. the pre-Volcker, the Volcker-Greenspan and the Greenspan...

This paper attempts to measure the reaction of monetary policy to the stock market. We apply the procedure of Rigobon and Sack (2003) to identify and estimate a VAR in the presence of heteroskedasticity. This procedure fully takes into account the endogeneity of interest rates and stock returns...

Monetary policy works mainly through private agents' expectations. How precisely future policy intentions are communicated has, according to theory, implications for the outcome of monetary policy. Norges Bank has gone further than most other central banks in communicating its policy intentions....

We employ the robust-satisficing approach to derive robust monetary policy when parameters of a macro model are uncertain. There is a trade-off between robustness of policies and their performance. Hence, under uncertainty, the policy maker is assumed to be content with policy performance at...