It is often argued that deregulation of international transactions and its effects on the globalization of financial markets is behind the decline in the attractiveness of fixed exchange rate regimes. We argue that, instead, much of the recently observed decrease in the level of capital controls...

OPTIMThe conservative central banker has come under attack recently. Explicitly modeling the interaction of a trade union with monetary policy, it has been argued that the standard solution to the inflationary bias in monetary policy might actually be welfare reducing if the trade union has an...

The paper extends previous analysis of closed-economy inflation targeting to a small open economy with forward-looking aggregate supply and demand with some microfoundations, and with stylized realistic lags in the different transmission channels for monetary policy. The paper compares targeting...

In the late 1970s countries in Latin America's Southern Cone attempted to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange-rate devaluation. The stabilization programs gave rise to massive capital inflows, real exchange-rate appreciation, and...

We define and study transparency, credibility, and reputation in a model where the central bank's characteristics are unobservable to the private sector and are inferred from the policy outcome. A low-credibility bank optimally conducts a more inflationary policy than a high-credibility bank, in...