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...

This paper investigates the stabilization bias that arises in a model of monetary and fiscal policy stabilization of the economy, when monetary authority puts higher weight on inflation stabilization than society. We demonstrate that inflation conservatism unambiguously leads to social welfare...

When policy forecasts are based on the policymaker's present and past actions, current policy affects expectations of future policy, contrary to what happens when forecasters can replicate policymaking perfectly. We show that when forecasts are generated through any linear combination of present...

In this paper we adopt a Bayesian approach toward the estimation of monetary policy preference parameters in a general equilibrium framework for the euro area. We assume that monetary policy authorities optimize an intertemporal quadratic loss function under commitment and study two alternative...

We examine policy rate recommendations of the Bank of Canada’s Governing Council (GC) and its shadow, the C.D. Howe Institute’s Monetary Policy Council (MPC). Individual recommendations of the MPC are observed but not those of the GC. Differences in the two committees’ recommendations are...

In this paper, we analyze the impact of a persistent productivity increase in a set of countries—which we think of as the economies of Brazil, Russia, India, and China (BRIC)—on inflation in their trading partners, the Group of Seven (G-7). In particular, we want to understand the conditions...

This paper shows that switching the dominant use of household-specific sticky wages in the New Keynesian model (Erceg, Henderson, and Levin 2000) for firm-specific sticky wages has qualitative and quantitative consequences. First, the model with firm-specific sticky wages incorporates endogenous...

Macroeconomists have long recognized that activity-gap measures are unreliable in real time and that this can present serious difficulties for stabilization policy. This paper investigates whether the credit-to-GDP ratio gap, which has been proposed as a reference point for accumulating...

This paper investigates the conduct of monetary and fiscal policy in the post-ERM period in the United Kingdom. Using a simple DSGE New Keynesian model of non-cooperative monetary and fiscal policy interactions under fiscal intraperiod leadership, we demonstrate that the past policy in the...

Since the early 1980s, the U.S. economy has changed in some important ways: inflation now rises considerably less when unemployment is low, and the volatility of output and inflation have fallen sharply. This paper examines whether changes in monetary policy can account for these changes in the...