In closed or open economy models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We analyze this result in the context of developing economies, where a large proportion of households are credit constrained...

We develop a two-sector, heterogeneous-agent model with incomplete financial markets to study the distributional effects and aggregate welfare implications of alternative monetary policy rules in emerging market economies. Relative to inflation targeting, exchange rate management benefits...

Real wages are a key determinant of marginal costs. The latter themselves are a driving force of inflation. We ask how wages and labor market shocks feed into the inflation process. We model search and matching frictions in the labour market in an otherwise standard New-Keynesian closed economy...

This theoretical contribution shows a simple way in which the quantity equation can be derived as a long-term equilibrium solution for the case of a closed economy and an open economy, respectively. It is shown first for the case of a closed economy which parameters stand behind "velocity" and...

How does the asymmetry of labor market institutions affect the adjustment of a currency union to shocks? To answer this question, this paper sets up a dynamic currency union model with monopolistic competition and sticky prices, hiring frictions and real wage rigidities. In our analysis, we...

Central banks around the world are exploring and in some cases even piloting Central Bank Digital Currencies (CBDCs). CBDCs promise to realize a broad range of new capabilities, including direct government disbursements to citizens, frictionless consumer payment and money-transfer systems, and a...

Using the Reserve Bank of Australia's MARTIN model we compare actual monetary policy decisions to a counterfactual in which the cash rate is set according to an optimal simple rule. We find that monetary policy played a crucial role in avoiding a potential recession in 2001 and mitigating the...

This paper investigates whether exchange rate pass-through (ERPT) into import prices is a nonlinear phenomenon for five heavily indebted Euro area countries, namely the so-called GIIPS group (Greece, Ireland, Italy, Portugal, and Spain). Using logistic smooth transition models, we explore the...

We consider a model with frictional unemployment and staggered wage bargaining where hours worked are negotiated every period. The workers' bargaining power in the hours negotiation affects both unemployment volatility and inflation persistence. The closer to zero this parameter, (i) the more...

In models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. In this paper, we develop a twosector two-good closed economy new Keynesian model to study the optimal choice of price index in markets with...