This paper studies an advantage of commitment over discretion when a central bankobserves only noisy measures of current inflation and output, in the context of an optimizingmodel with nominal-price stickiness. Under a commitment regime, if current policy turns outto be too expansionary...

The paper evaluates the performance of three popular monetary policy rules when the central bank is learning aboutthe parameter values of a simple New Keynesian model. The three policies are: (1) the optimal non-inertial rule; (2)the optimal history-dependent rule; (3) the optimal price-level...

This paper considers the determination of aggregate price level under dispersed information.A Central Bank sets policy in response to its noisy measure of the price level, andeach agent makes its decisions by observing a subset of data. Information revealed to theagents and the bank is...

Over the past 15 years there has been remarkable progress in the specification and estimation of dynamic stochastic general equilibrium (DSGE) models. Central banks in developed and emerging market economies have become increasingly interested in their usefulness for policy analysis and...

A central proposition in research on the role that banks play in the transmission mechanism is that monetary policy imparts a direct impact on deposits and that deposits, insofar as they constitute the supply of loanable funds, act as the driving force of bank lending. This paper argues that the...

The objective of this paper is to analyze the effects of alternative monetary rules on realexchange rate persistence. Using a two-country stochastic dynamic general equilibrium withnominal price stickiness and local currency pricing, we will show how the persistence ofpurchasing power parity...

This study analyzes a two-country dynamic general equilibrium model with nominal rigidities,monopolistic competition and producer currency pricing. A quadratic approximation to the utility ofthe consumers is derived and assumed as the policy objective function of the policymakers.It is shown...

The fiscal theory of the price level says that the price level can be made determinate if thegovernment uses fiscal policies such that government liabilities explode unless the price inthe first period is at the “right” level. The policy implications are disturbing, as they callfor rather...

We study the effects of model uncertainty in a simple New Keynesian model using robustcontrol techniques. Due to the simple model structure, we are able to find closed-formsolutions for the robust control problem, analyzing both instrument rules and targetingrules under different timing...