After two decades of successfully restoring price stability in much of the world economy, central banks begin the next millennium facing a new set of challenges. One key task is how to conduct monetary policy in an era of price stability. Clearly, policymakers would like inflation to remain...

Most central banks conduct monetary policy by setting targets for overnight interest rates. During the 1990s, central banks have tended to move these interest rates in small steps without reversing direction quickly, a practice called interest rate smoothing. For example, the majority of Federal...

In the spring of 2004, there was widespread expectation in financial markets that the Federal Reserve would shortly begin the process of raising its federal funds rate target back toward a more normal level. At the time, there was considerable concern that removing policy accommodation could...

An important part of monetary policy is the monetary transmission mechanism, the process by which monetary policy actions influence the economy. While the transmission mechanism involves a number of channels, including exchange rates, bank credit, and asset prices, most economists consider...

Empirical estimates of the Federal Reserve's policy rule typically find that the regression coefficient on the lagged federal funds rate is around 0.8 and strongly significant. One economic interpretation of this result is that the Fed intentionally "smoothes" interest rates, i.e., policymakers...

An argument that an interest rate peg is desirable because it mitigates the distortions that arise in a monetary economy, and that money growth should be procyclical in order to achieve the interest rate peg.