Abstract: Central banks in fluence financial markets' expectations of its future policy. By providing its stance on the prospects of the economy, rationalizing past decisions or announcing future actions, central banks affect financial markets' forecasts. In bad times monetary policy...

This paper examines the effect of monetary policy on the exchange rate during currency crises. Using data for a number of crisis episodes between 1986 and 2004, we find strong evidence that raising the interest rate: (i) has larger adverse balance sheet effects and is therefore less effective in...

We provide an up-to-date overview of the literature on the desirabil- ity of central bank transparency from an economic viewpoint. Since the move towards more transparency, a lot of research on its e¤ects has been carried out. First, we show how the theoretical literature has evolved, by...

We look at the implications of uncertain monetary policy preferences for the targeting and contracting approach to monetary stability. It turns out that in presence of uncertain preferences a linear incentive contract in the sense of Walsh (1995) performs better in terms of social welfare than...

If discretionary monetary policy implies an inflation bias, monetary unification boosts the accumulation of public debt. The additional debt accumulation is welfare reducing only if governments are sufficiently myopic. In the presence of myopic governments, debt ceilings play a useful role in...

This paper starts with a discussion of the various aspects of accountability of central banks. On the basis of this discussion we construct an indicator for accountability for 16 central banks, including the European Central Bank. It is shown that the degree of accountability differs...

Central banks have become more and more transparent about their monetary policy making process. In the central bank transparency lit- erature the distinction between actual and perceived central bank trans- parency is often lacking. However, as perceptions are crucial for the ac- tions of...

This paper studies how the exposure of a country's corporate sector to interest rate and exchange rate changes affects the probability of a currency crisis.To analyze this question, we present a model that defines currency crisis as situations in which the costs of maintaining a fixed exchange...

Two model averaging approaches are used and compared in estimating and forecasting dynamic factor models, the well-known BMA and the recently developed WALS. Both methods propose to combine frequentist estimators using Bayesian weights. We apply our framework to the Armenian economy using...

This paper explores how decentralized, national fiscal policies interact with a common monetary policy in a monetary union. We show that fiscal policy plays a more important ro le in stabilizing country-specific shocks than with national monetary policies. Whereas monetary u nification with an...