Considerable research has focused on explaining why currencies appreciate in real terms after the nominal exchange rate is stabilized, but this research generally has taken a theoretical approach, and rarely has tested its hypotheses empirically. In this paper I estimate a simple...

Ramsey models of fiscal and monetary policy with perfectly-competitive product markets and a fixed supply of capital predict highly volatile inflation with no serial correlation. In this paper, we show that an otherwise-standard Ramsey model that incorporates capital accumulation and habit...

Inflation targeting (IT)--a policy framework that directly targets an explicit inflation goal--has gained widespread attention recently as it has been adopted by several OECD countries. There is a growing body of literature on the ultimate long-term benefits of price stability and on theoretical...

This paper develops an empirically constant, data-coherent, error cor­rection model for inflation in Australia. The level of consumer prices is a mark-up over domestic and import costs, with adjustments for dynamics and relative aggregate demand. We address issues of cointegration, general to...

Cross-country regressions explaining output growth often obtain a negative effect from inflation. However, that result is not robust, due to the selection of countries in sample, temporal aggregation, and omission of consequential variables in levels. This paper demonstrates some implications of...

We demonstrate the existence of a monetary policy tradeoff between price-inflation variability and output-gap variability in an optimizing-agent model with staggered nominal wage and price contracts. This variance tradeoff is absent only in the special case in which prices are sticky and wages...

Was the high inflation of the 1970s mostly due to incomplete information about the structure of the economy (an unavoidable mistake as suggested by Orphanides, 2000)? Or, to weak reaction to expected inflation and/or excessive policy activism that led to indeterminacies (a policy mistake, a...

If price levels are initially different across the euro area, convergence to a common level of prices would imply that inflation will be higher in countries where prices are initially low. Price level convergence thus provides a potential explanation for recent cross-country differences in...

Recent research suggests that the pass-through of exchange rate changes into domestic inflation has declined in many countries since the 1980s. We develop a theoretical model that attributes the change in pass-through (defined as the correlation of inflation with exchange rate changes) to...

This paper examines episodes of sudden large exchange rate depreciations (currency crashes) in industrial countries and characterizes the behavior of government bond yields during and after these crashes. The most important determinant of changes in bond yields appears to be inflationary...