Can a model with limited labor market insurance explain standard macro- and labor market data jointly? We seek to construct a monetary model in which: i) the unemployed are worse off than the employed, i.e. unemployment is involuntary and ii) the labor force participation rate varies with the...

Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model which resolves this apparent micro - macro conflict. Our...

This paper proposes a simple explanation for the frequent appearance of a price puzzle in VARs designed for monetary policy analysis. It suggests that the best method of solving the puzzle implies a close connection between theory and empirics rather than the introduction of a commodity price....

Using stochastic simulations of the Reserve Bank of New Zealand’s macroeconomic model, this paper examines the implications for monetary policy of uncertainty about the length of the monetary policy transmission lag. Uncertainty is examined from two perspectives. The first investigates the...

This paper analyses the role of financial variables in the conduct of monetary policy. In the baseline model for the analysis of interest rules, the inflation rate depends on the output gap, which is solely determined by its own lags and the lagged short-term real interest rate. However, from a...

In this paper we discuss the recent experience of conducting monetary policy with a collegial board according to the Riksbank act. Interest rate decisions are normally taken with the aim to bring inflation in line with the 2 per cent inflation target one to two years ahead. When there are...

In this paper an expectations-augmented Phillips curve relation in an open economy is derived and estimated. As in Rotemberg´s (1982) model firms are assumed to face quadratic price adjustment costs. In addition, second-order costs of changing prices are not included. Consequently the derived...

How monetary policy affects the economy is a central topic of debate in macroeconomics. The bank lending channel is one approach that emphasises the role of banks. Banks are important because of asymmetric information in the financial market. Banks are assumed to be better at handling...

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This paper analyzes the use of announcements of objectives or intentions, announcements which are common in implementation of monetary policy. To analyze such announcements, this paper uses a model in which there is asymmetric information over the central bank’s objectives. This informational...