A number of previous studies suggest that inflation expectations are important in considering the effectiveness of monetary policy in a liquidity trap. However, the role of inflation expectations can be very different, depending on the type of monetary policy that a central bank implements. This...

We explore how outcomes of optimal monetary policy with loose commitment (Schaumburg and Tambalotti, 2007; Debortoli and Nunes, 2010) can be observationally equivalent, or interpretable as outcomes of deeper optimal policy under sustainable plans (Chari and Kehoe, 1990). Both interpretations of...

We develop a model with labor-market matching frictions that is subject to a range of shocks, including shocks to matching efficiency and bargaining power, and use the model to examine how monetary policy should respond to such shocks. We show that optimal monetary policy is highly efficient at...

We examine policy rate recommendations of the Bank of Canada's Governing Council (GC) and its shadow, the C.D. Howe Institute's Monetary Policy Council (MPC). Individual recommendations of the MPC are observed but not those of the GC. Differences in the two committee's recommendations are small...

We introduce financial market friction through search and matching in the loan market into a standard New Keynesian model. We reveal that the second order approximation of social welfare includes the terms related to credit, such as credit market tightness, the volume of credit, and the loan...

One way of evaluating how well monetary authorities perform is to provide the public with a regular and independent second opinion. The European Central Bank (ECB) and the Bank of England (BoE) are shadowed by professional and academic economists who provide a separate policy rate recommendation...

In the context of recent developments with cryptocurrencies, as well as the potential rise of central bank digital currencies, we present a new visualisation of money. Using three novel figures, we distinguish between the relevant mechanisms, technologies, recordkeeping, and transactions of...

We study discretionary monetary policy in an economy where economic agents have quasi-hyperbolic discounting. We demonstrate that a benevolent central bank is able to keep inflation under control for a wide range of discount factors. If the central bank, however, does not adopt the household's...

The evidence from many experiments suggests that people are heterogeneous with regard to their abilities to make rational, forward looking, decisions. This raises the question when the rational types are decisive for aggregate outcomes and when the boundedly rational types shape aggregate...

This paper investigates how and to what extent nonlinearity, including the zero lower bound on the nominal interest rate, affects the estimates of the natural rate of interest in a dynamic stochastic general equilibrium model with sticky prices and wages. We find that the estimated natural rate...