Monetary policy has fiscal implications that are especially pronounced at the zero lower bound. Independent central banks in advanced economies have considerable leeway to ease fiscal pressures faced by governments without compromising price stability. They also have the power to create...

This study examines foreign exchange intervention based on novel daily data covering 33 countries from 1995 to 2011. We find that intervention is widely used and an effective policy tool, with a success rate in excess of 80 percent under some criteria. The policy works well in terms of smoothing...

We study the characteristics of inflation targeting as a shock absorber, using quarterly data for a large panel of countries. To overcome an endogeneity problem between monetary regimes and the likelihood of crises, we propose to study large natural disasters. We find that inflation targeting...

The Federal Reserve's muddled mandate to attain simultaneously the incompatible goals of maximum employment and price stability invites short-term-oriented discretionary policymaking inconsistent with the systematic approach needed for monetary policy to contribute best to the economy over time....

A burgeoning part of the monetary policy design literature posits that optimal monetary policy is the solution to a constrained optimization problem where the monetary authority has the discretion to minimize a social welfare function, taking the economy and other policies as given. Davig and...

The monetary policy of the ECB and the Fed over the past few years are compared and contrasted. The two central banks have similar price stability objectives and faced similar conditions early in the crisis, including the zero bound on short-term interest rates. Since mid-2012, their policies...

The paper analyses the global spillovers of the Federal Reserve's unconventional monetary policy measures. First, we find that Fed measures in the early phase of the crisis (QE1), but not since 2010 (QE2), were highly effective in lowering sovereign yields and raising equity markets in the US...

Since the beginning of the crisis, euro area governments have experienced greater fiscal stress than governments of advanced economies outside the euro area with weaker fiscal fundamentals. What has been the source of this fragility and how can it be corrected? The cause of the instability in...

Comparing and contrasting the Fed’s and ECB’s policy responses to the 2008 Global Financial Crisis (GFC) and the COVID-19 pandemic highlights the importance of the fiscal dimension of monetary policy and the pitfalls that can arise when the synergy of fiscal and monetary policy is neglected...

Marvin Goodfriend's (2014) insightful, informative and provocative work explains concisely and convincingly why the Fed needs rules and boundaries. This paper reviews the broader institutional design problem regarding the effectiveness of the central bank in practice and confirms the need for...