The new open-economy macroeconomics seeks to provide an improved basis for monetary and exchange-rate policy through the construction of open-economy models that feature rational expectations, optimising agents, and slowly adjusting prices of goods. This paper promotes an alternative approach...

This paper extends the existing literature on the uniqueness and stability conditions for an equilibrium under inflation-forecast-based (IFB) rules. It shows that, for a variety of New Keynesian sticky-price and sticky-inflation models, these are a function not just of the degree of...

We study the welfare performance of various simple monetary policy rules under bounded rationality (BR) along the lines of Gabaix (2020) in a New Keynesian model with sticky wages and an effective lower bound (ELB) on interest rates. Policy strategies with a strong history dependence lose their...

We examine how private sector agents might learn a new monetary strategy that is adopted while at the ELB. Little can be discovered until the economy improves enough that rates would be near liftoff under the old strategy. Recessionary shocks would thus delay learning while large inflationary...

This paper introduces a reinforcement learning based approach to compute optimal interest rate reaction functions in terms of fulfilling inflation and output gap targets. The method is generally flexible enough to incorporate restrictions like the zero lower bound, nonlinear economy structures...

Using federal funds futures data, we show the importance of surprise communication as a component of monetary policy for U.S. macro variables, both before and after 2008. While Gürkaynak et al. (2005) stress the importance of monetary policy communication for asset prices, much of the...

This paper takes up the issue of the flexibility of inflation targeting regimes, with the specific goal of determining whether the monetary policy of the Bank of England, which has a formal inflation target, has been any less flexible than that of the Federal Reserve, which does not have such a...

We study the equilibrium properties of a business cycle model with financial frictions and price adjustment costs. Capital-constrained entrepreneurs finance risky projects by borrowing from banks. Banks, in turn, make loans using equity and deposits. Because financial contracts are not...

This paper proposes a tractable financial accelerator New Keynesian DSGE modelthat allows for closed-form solutions. In the presence of financial frictions, theNew Keynesian Phillips curve features a flat slope with respect to the output gapand is strongly forward-looking. All shocks cause...

Could a monetary policy loosening in a low interest rate environment have unintended recessionary effects? Using a non-linear macroeconomic model fitted to the euro area economy, we show that the effectiveness of monetary policy can decline in negative territory until it reaches a turning point,...