Central banks face uncertainty about potential output. We model optimal monetary policy under discretion in a situation in which the central bank adopts a min–max approach to policy. The case for appointing a conservative central banker who puts a larger weight on inflation stabilization...

This paper studies empirically the dynamic interactions between asset prices, monetary policy, and aggregate fluctuations in the U.S. during the Volcker–Greenspan period. Results from a simple structural vector autoregression indicate that monetary policy reacts directly to the term spread and...

The effects of monetary policy vary significantly across countries. In particular, recent empirical work finds evidence of a Tobin effect in high income countries and a reverse Tobin effect in less developed economies. We present a neoclassical growth model where money is required for investment...

In a recent paper, Adão et al. (2011), using a cash-in-advance framework, derive an interest rate rule that results in a unique monetary equilibrium. The resulting interest rate rule is forward looking and the interest rate responds positively to forecasts of future real activity and to...

I determine expected long-run inflation in a two-state New Keynesian model driven by natural interest-rate uncertainty. Monetary policy switches between discretion in ‘normal times’ and zero-lower-bound episodes when it is passive. Long-run US inflation ranges from −1.8% to +1.2% p.a.

We investigate the role of exchange rates in inflation-targeting emerging economies. We give strong evidence that hybrid inflation-targeting frameworks, where exchange rate is managed, deliver a stronger nominal anchor, as they show better resistance to the 2007–2008 inflation shock.

We investigate the impact of monetary conditions on stock market returns at different points on the return distributions. Our results reveal no association between stock returns and monetary environments at the lower quantiles. At the upper quantiles, however, we find that expansive monetary...

Previous literature has shown that, in a New Keynesian model, an expectations based policy rule induces E-stability of the fundamental equilibrium, while a fundamentals based one does not. We derive an alternative rule, based only on fundamentals, which can also achieve stability of equilibrium...

Recent literature has reported situations in which discretion dominates timeless perspective in the presence of elements that reduce the slope of the New Keynesian Phillips curve. Considering a model-consistent welfare metric inhibits this mechanism in the standard New Keynesian framework.

This paper compares macroprudential policy and monetary policy using a simple New Keynesian model with credit. Macroprudential policy is effective in stabilizing credit with limited impact on inflation. Monetary policy stabilizes inflation, but is ‘too blunt’ for credit stabilization.