This paper presents a monetary DSGE model of the U.S. economy. The model captures the most important production, expenditure, and nominal-contracting decisions underlying economic data while remaining sufficiently small to allow it to provide a clear interpretation of the data. We emphasize the...

This paper documents two facts about countries with floating exchange rates where monetary policy controls inflation using a short-term interest rate. First, the current real exchange rate predicts future changes in the nominal exchange rate at horizons greater than two years both in sample and...

While uncovered interest parity (UIP) fails unconditionally, UIP conditional on monetary policy actions remains a cornerstone of macroeconomic models used for monetary policy analysis. We posit that monetary policy actions are partially revealed by FOMC statements and propose a new...

This note focuses on the longer-run implications of alternative monetary policy strategies for the evolution of the price level. The analysis compares the properties of optimal policy in regimes ranging from pure inflation targeting (IT), to a form of weighted-average inflation targeting (WAIT),...

We analyze the framework for monetary policy in view of the effective lower bound (ELB). We find that the ELB is likely to bind in most future recessions and propose some ways that theoretical models imply that the framework could be strengthened. We also discuss ways that commitment strategies,...

We consider three ways that a monetary policy framework may employ a range for inflation outcomes: (1) ranges that acknowledge uncertainty about inflation outcomes (uncertainty ranges), (2) ranges that define the scope for intentional deviations of inflation from its target (operational ranges),...

Several structural developments in the U.S. economy—including lower neutral interest rates and a flatter Phillips curve—have challenged the ability of the current monetary policy framework to deliver on the Federal Open Market Committee’s (FOMC) dual-mandate goals. This paper explores...

We review macroeconomic performance over the period since the Global Financial Crisis and the challenges in the pursuit of the Federal Reserve’s dual mandate. We characterize the use of forward guidance and balance sheet policies after the federal funds rate reached the effective lower bound....

Using a new consumer survey dataset, we document a new dimension of heterogeneity in inflation expectations that has implications for consumption and saving decisions as well as monetary policy transmission. We show that German households with the same inflation expectations differently assess...

This paper analyzes Milton Friedman's (1968) article "The Role of Monetary Policy," via a discussion of seven fallacies concerning the article. These fallacies are: (1) "The Role of Monetary Policy" was Friedman’s first public statement of the natural rate hypothesis. (2) The...