In this paper we study the relationship between labour market institutions and monetary policy. We use a simple macroeconomic framework to show how optimal monetary policy rules depend on labour institutions (labour adjustment costs, and nominal and real wage rigidity) and social preferences...

We examine optimal policy in a two-country model with uncertainty and learning, where monetary policy actions affect the real economy through the real exchange rate channel. Our results show that whether policy should be cautious or activist depends on the size of one country relative to...

We respond to the challenge of explaining the Great Inflation by building a coherent framework in which both learning and uncertainty play a central role. At the heart of our story is a Federal Reserve that learns and then disregards the Phillips curve as in Sargent's Conquest of American...

This paper introduces adaptive learning and endogenous indexation in the New-Keynesian Phillips curve and studies disinflation under inflation targeting policies. The analysis is motivated by the disinflation performance of many inflation-targeting countries, in particular the gradual Chilean...

In this Paper, we suggest a new motivation for why central banks appear averse to reversing recent changes in their interest rate. We show, in a standard monetary model with forward-looking expectations, data uncertainty and parameter uncertainty, that there is a learning cost associated with...

Historical experience suggests that the distribution of monetary policy authority among the members of a monetary union is a key aspect of the design of a central bank constitution. We analyse alternative institutional solutions to that problem with different degrees of centralization of...

The paper explores the case for monetary and fiscal unification. Monetary policy suffers from an inflation bias because the monetary authorities are not able to commit. With international risk-sharing in a fiscal union, fiscal discipline suffers from moral hazard. An inflation target alleviates...

This paper presents a model of monetary policy-making in a federal monetary union. Central bank council members are representatives from the member states. In a repeated-game context, council members have an incentive to engage in strategic voting, trading political favours between each other....

In this Paper, we analyse the implications of price setting restrictions for the conduct of cyclical fiscal and monetary policy. We consider an environment with monopolistic competitive firms, a shopping time technology, prices set one period in advance, and government expenditures that must be...

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...