The paper generalizes the Taylor principle---the proposition that central banks can stabilize the macroeconomy by raising their interest rate instrument more than one-for-one in response to higher inflation---to an environment in which reaction coefficients in the monetary policy rule evolve...

This paper develops an analytical framework for the analysis of targeting rules for monetary policy. We derive the optimal money supply rule and analyze the implications of other monetary rules including rules that target nominal GNP, the price level, the monetary growth rate and the...

This paper makes changes in monetary policy rules (or regimes) endogenous. Changes are triggered when certain endogenous variables cross specified thresholds. Rational expectations equilibria are examined in three models of threshold switching to illustrate that (i) expectations formation...

This essay aims to explain the nature of monetary and fiscal policy interactions and how those interactions could inform the fiscal rules that countries choose to follow. It makes two points: (1) monetary policy control of inflation requires appropriate fiscal backing; (2) European fiscal...

Expansionary fiscal policies have increased significantly following the subprime crisis in 2007 and the COVID-19 crisis, leading to fiscal dominance concerns, where a growing share of monetary authorities may be forced to deviate from policy targets to accommodate fiscal policies. Meanwhile,...

This paper examines whether prudential policies help to reduce sovereign bond vulnerability to global spillover risk in ASEAN-4 countries (Indonesia, Malaysia, the Philippines, and Thailand). We measure sovereign vulnerability within a risk connectedness network among sovereign bonds. The direct...

This paper develops a unified framework for the analysis of wage indexation and monetary policy in the presence of supply shocks. We first present simple formulae for the optimal wage indexation rule and for the optimal money supply rule. In order to set the stage for an evaluation of departures...

This paper deals with the design of optimal monetary policy and with the interaction between the optimal degrees of wage indexation and foreign exchange intervention. The model is governed by the characteristics of the stochastic shocks which affect the economy and by the information set that...

This paper analyzes the role of relative prices in the conduct of wage indexation and monetary policy in a small economy producing traded and non-traded goods under a flexible exchange rate regime. It is shown that the beneficial effect of using relative prices in addition to aggregate prices as...