In a recent paper, Levine, McAdam, and Pearlman (2007) propose a new type of interest rate rule, which they denote a “Calvo-type” rule. The Calvo-type interest rate responds to the discounted sum of current and future rates of inflation. We show that a Calvo-type rule can be derived from a...

Recent treatments of the issue of a zero floor on nominal interest rates have been subject to some important methodological limitations. These include the assumption of perfect foresight or the introduction of the zero lower bound as an initial condition or a constraint on the variance of the...

There are many indications that formal methods are not used to their full potential by central banks today. In this paper, using data from Sweden, we demonstrate how BVAR and DSGE models can be used to shed light on questions that policymakers deal with in practice. We compare the forecast...

We examine an interesting puzzle in monetary economics between what monetary authorities claim (namely, to be forward looking and preemptive) and the poor stabilization properties routinely reported for forecast-based rules. Our resolution is that central banks should be viewed as following...

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...

We use a monetary overlapping-generations model to discuss the cause and durability of the marked fall in the volatility of inflation in recent decades. In our model, agents have to forecast inflation, and they do so using two "heuristics." One is based on lagged inflation, the other on an...

This paper employs stochastic simulations of the New Area- Wide Model—a microfounded open-economy model developed at the ECB—to investigate the consequences of the zero lower bound on nominal interest rates for the evolution of risks to price stability in the euro area during the recent...

Forecasting using "diffusion indices" has received a good deal of attention in recent years. The idea is to use the common factors estimated from a large panel of data to help forecast the series of interest. This paper assesses the extent to which the forecasts are influenced by (i) how the...

This paper describes a method for calculating daily realtime estimates of the current state of the U.S. economy. The estimates are computed from data on scheduled U.S. macroeconomic announcements using an econometric model that allows for variable reporting lags, temporal aggregation, and other...

Many central banks publish regular assessments of the magnitude and balance of risks to the macroeconomic outlook. In this paper, we analyze the statistical properties of the inflation risk assessments that have been published by the Bank of England and the Sveriges Riksbank. In each case, we...