The “sub-prime” crisis, which led to major turbulence in global financial markets beginning in mid-2007, has posed major challenges for monetary policymakers. We analyze the impact on monetary policy of the widening differential between policy rates and the three-month LIBOR rate, the...

This paper studies when and by how much the Federal Reserve and the European Central Bank change their target interest rates. I develop a new non-linear bivariate framework, which allows for elaborate dynamics and potential interdependence between the two countries, as opposed to linear feedback...

In this paper, we propose a simple econometric framework to disentangle the respective roles of monetary policy inertia and persistent shocks in interest rate rules. We exploit the restrictions of a DSGE model that is confronted with a monetary SVAR. We show that, provided enough informative...

We examine the ability of the New Keynesian Phillips curve to explain U.S. inflation dynamics when inflation forecasts (from the Federal Reserve’s Greenbook and the Survey of Professional Forecasters) are used as a proxy for inflation expectations. The New Keynesian Phillips curve is estimated...

This paper investigates the implications of cross-country heterogeneity within the euro area for the design of optimal monetary policy. We build an optimization-based multicountry model (MCM) describing the euro area in which differences between structural parameters across countries are...

In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal, and financial frictions, and hence both monetary and macroprudential policy can play a role. We find that the introduction of a...

In this paper, we consider whether long-term inflation expectations have become better anchored in Brazil, Chile, and Mexico. We do so using survey-based measures as well as financial-market-based measures of long-term inflation expectations, where we construct the market-based measures from...

In this paper, we examine the performance and robustness of optimized interest-rate rules in four models of the euro area that differ considerably in terms of size, degree of aggregation, relevance of forward-looking behavioral elements, and adherence to microfoundations. Our findings are...

"Forecast targeting", forward-looking monetary policy that uses central-bank judgment to construct optimal policy projections of the target variables and the instrument rate, may perform substantially better than monetary policy that disregards judgment and follows a given instrument rule. This...

We investigate the effects of U.S. monetary policy on asset prices using a high-frequency event-study analysis. We test whether these effects are adequately captured by a single factor-changes in the federal funds rate target - and find that they are not. Instead, we find that two factors are...