The European Central Bank has assigned a special role to money in its two pillar strategy and has received much criticism for this decision. In this paper, we explore possible justifications. The case against including money in the central bank's interest rate rule is based on a standard model...

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

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...

Recently, several central banks have abandoned the usual secrecy in monetary policy and become very transparent. This paper provides an explanation for this puzzling fact, focusing on the disclosure of central bank forecasts. It shows that transparency reduces the inflationary bias and gives the...

The paper advances a simple and tractable Wicksellian model of inflation, in which the price level is determined by the interaction of the nominal rate of return on capital with a rule that governs the interest rate at which the Central Bank supplies money, and in which the equality of the...

We defend the forecasting performance of the FOMC from the recent criticism of Christina and David Romer. Our argument is that the FOMC forecasts a worst-case scenario that it uses to design decisions that will work well enough (are robust) despite possible misspecification of its model. Because...

We calibrate a standard New Keynesian model with three alternative representations of monetary policy- an optimal timeless rule, a Taylor rule and another with interest rate smoothing- with the aim of testing which if any can match the data according to the method of indirect inference. We find...

The paper discusses the strong output decline in the countries of Central and Eastern Europe. It starts from the puzzling observation that the former CSFR, Hungary and Poland experienced a relatively similar decline in output in spite of completely different stabilization and transformation...

This Paper explores the quantitative implications of an approach to monetary policy that gained prominence in the United States during the 1990s. Proponents of this approach recommend that, when inflation is moderate but still above the long-run objective, the central bank should not move...

The first part of the paper analyzes the inflationary risks associated with price liberalization, the welfare costs of inflation and the difficulties of East European central banks in pursuing non-inflationary policies. The main obstacles are the low credibility of stabilization policies and a...