In this paper we analyse disinflation policy in two environments. In the first, the central bank has perfect knowledge, in the sense that it understands and observes the process by which private sector inflation expectations are generated; in the second, the central bank has to learn the private...

The paper develops an empirical no-arbitrage Gaussian affine term structure model to explain the dynamics of the German term structure of interest rates from 1979 through 1998. In contrast to most affine term structure models two risk factors that drive the dynamics are linked to observable...

We investigate the effect of fiscal institutions such as the strength of the finance minister in the budget process and deficits on interest spreads contained in bond yields of the countries now belonging to the Eurozone. Deficits significantly increase risk premia measured by relative swap...

Macroeconomic Policies of the Economic and Monetary Union: Theoretical Underpinnings and Challenges Philip Arestis and Malcolm Sawyer, The Levy Economics Institute and Leeds University Abstract This paper presents two issues: first, an effort to decipher the type of economic analysis and...

This paper describes the Federal Reserve's analytical framework under Volcker and Greenspan, as it was constructed in the early 1980s, during a period of high inflation. It traces the modeling and policy implications of this framework. It discusses the Fed's actual track record and the state of...

We use a range of simple models and 22 years of real-time data vintages for the U.S. to assess the difficulties of estimating the equilibrium real interest rate in real time. Model specifications differ according to whether the time-varying equilibrium real rate is linked to trend growth, and...

Using an optimisation-based model with endogenous labour supply and a proportional tax rate, we compare the stabilising properties of different fiscal policy rules. The economy is affected by shocks from both government spending and technology. The fiscal policy rule can be based on government...

In this paper we assess whether monetary variables convey marginal information on the state of the Italian economy, taking as a benchmark the forecasting errors generated by the quarterly model used by the Bank of Italy in the 1990s. We follow two alternative approaches. First we map monetary...

In this paper we introduce an application of the supply-side channel for fiscal policy to the basic New Keynesian model. We use a proportional tax rate instead of lump sum tax and introduce the distortions of a tax wedge. We derive a closed economy forward-looking model with government...

In this paper we consider inflation and government debt dynamics when monetary policy employs a global interest rate rule and private agents’ forecasts using adaptive learning. Because of the zero lower bound on interest rates, active interest rate rules are known to imply the existence of a...