In setting monetary policy in 1995, the Federal Reserve sought to promote sustainable economic growth and continued progress toward price stability. Toward those ends, the Federal Reserve adjusted the stance of monetary policy three times in 1995. In February, amid signs of increasing...

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A study of the effect of disinflation policies on monetary velocity, which shows a systematic relation between unexpected changes in the money-income relationship and changes in the trends of inflation rates, and which concludes that the failure to commit to a stable price policy tends to...

Inflation targeting has been adopted by many central banks, but not by the U.S. Federal Reserve. Using an estimated New Keynesian business cycle model, I perform counterfactual simulations to consider how history might have unfolded if the Federal Reserve had adopted a form of flexible inflation...

An analysis of how a rule for monetary policy specifying a stable price level may dominate a rule for zero inflation with price-level drift, even in the case where, for purely economic reasons, an inflation rule is preferred.

What inflation rate should the central bank target? The authors address determinacy issues related to this question in a two-sector model in which prices can differ in equilibrium. They assume that the degree of nominal price stickiness can vary across sectors and that labor is immobile. This...

The authors’ model, embodying moderate amounts of nominal rigidities, accounts for the observed inertia in inflation and persistence in output. The key features of their model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these...

Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model which resolves this apparent micro - macro conflict. Our...

This paper demonstrates that in a standard monetary model with a cash-in-advance constraint on consumption there exists real indeterminacy whenever the nominal interest rate moves too closely with the real rate. A particular example of such a policy is an inflation rate target. This is not a...

An examination of a standard sticky-price monetary model whose conditions are perturbed relative to the canonical real-business-cycle model by two varying distortions: marginal cost and the nominal rate of interest. The paper explores the implications of two monetary policies that are frequently...