When a central bank operates with multiple, non-nested models of the economy, generally no single policy rule will be optimal across within alternate models. In this context, Levin and Williams (2003) introduce the notion of fault tolerance of policy rules, that is, the performance of policy...

We examine optimal policy in an open-economy model with uncertainty and learning, where monetary policy actions affect the economy through the real exchange rate channel. Our results show that the degree of caution or activism in optimal policy depends on whether central banks are in coordinated...

For policymakers, thinking about best practice monetary policy means thinking about uncertainty. Open economy monetary policymakers face an additional source of uncertainty – exchange rate dynamics. This paper identifies policy rules robust to the open economy inflation targeters face in...

This paper addresses three issues on the conduct of monetary policy in open economies on the basis of a two-country model with Calvo-type sticky prices. Is the isomorphism of the optimal policy problems between closed and open economies robust to whether the foreign country is buffeted by...

Current account crises in emerging markets are characterized by large increases in interest rates, big drops in output, and large real currency depreciations. Current models of crisis with financial frictions do not generate very large movements in these variables. Recent work has shown that the...

We argue that inflation-targeting strategy in practice can be approximated with the interest rate responding to the unchanged-interest-rate forecast of inflation. We develop a method to derive unchanged-interest-rate forecasts in forward-looking models and evaluate the performance of the policy...

Abstract: The literature on the New Phillips Curve (NPC) started off with an analysis of pricing behaviour in economies that are closed and with price and wage contracts that are either of the Calvo or Taylor-style. In the spirit of the Batini, Jackson and Nickell (2000) here we focus on the...

In this paper we analyse the monetary impact of alternative fiscal policy rules using the debt and deficit, both mentioned as measures of fiscal policy performance in the Stability and Growth Pact (SGP). We use a New Keynesian model, with distortionary taxation and an appropriately defined...

In this paper, we examine the cost of insurance against model uncertainty for the Euro area considering four alternative reference models, all of which are used for policy-analysis at the ECB. We find that maximal insurance across this model range in terms of a Minimax policy comes at moderate...