This paper revisits Canada’s pioneering experience with a flexible exchange rate over the period 1950–62. It examines whether the floating rate was the best option for Canada in the 1950s by developing and estimating a New Keynesian small open-economy model of the Canadian economy. The model...

I study forty-six vintages of FRB/US, the principal macro model used by the Federal Reserve, as measures of real-time model uncertainty and examine the robustness of commonly applied, simple monetary policy rules. Model uncertainty turns out to be a substantial problem: key model properties...

We explore the possibility that a housing market boombust cycle may arise when public beliefs are driven by news shocks. News, imperfect and noisy by nature, may generate expectations that are overly optimistic or pessimistic. Overoptimism easily leads to excessive accumulation of housing assets...

This paper examines the time-series properties of the price level in five inflation-targeting countries. For the regimes in Australia, New Zealand, Sweden, and the United Kingdom, the price level wanders away from the path implied by the inflation target, and test results suggest that it has a...

Prudential instruments are commonly seen as the tools that can be used to deliver the macroprudential policy goals of reducing the frequency and severity of financial crises. And interest rates are traditionally viewed as the means to deliver the macroeconomic stabilization goals of low, stable...

Monetary policy is modeled as being governed by a known rule, except for a time-varying target rate of inflation. The variable target can be thought of either as standing in for discretionary deviations from the rule or as the outcome of a policymaking committee that is unable to arrive at a...

We report the results of an experimental analysis of monetary policy decision making under uncertainty. A large sample of economics students played a simple monetary policy game, both as individuals and in committees of five players. Our findings - that groups make better decisions than...

Firms in emerging markets are exposed to severe financial frictions and credit constraints that are exacerbated by the sudden stop of capital inflows. Can monetary policy offset this external credit squeeze? We show that although this may be the case during moderate contractions (or in partial...

Central banking transparency is now a topic of great interest, but its impact on the implementation of monetary policy has not been studied. This paper documents that anticipated changes in the target federal funds rate complicate open market operations. We provide theoretical and empirical...

Emerging markets do not handle adverse shocks well. In this paper, we lay out an argument about why emerging markets are so fragile, and why they may adopt contractual mechanisms—such as a dollarized banking system—that increase their fragility. We draw on this analysis to explain why...