Should central banks, because of the zero-lower-bound problem, raise their inflation-rate targets? Several arguments are relevant. (1) In the absence of the ZLB, the optimal steady-state inflation rate, according to standard New Keynesian reasoning, lies between the Friedman-rule value of...

The US Federal Reserve cut interest rates more vigorously in the recent recession than the European Central Bank did. By comparison with the Fed, the ECB followed a more measured course of action. We use an estimated dynamic general equilibrium model with financial frictions to show that...

This paper presents a prototype model for development of the fiscal theory of the price level.' In this simple setting, the fiscal theory's distinctiveness relies upon adoption of a bubble solution, rather than the rational-expectations fundamentals solution. The paper then shows that the fiscal...

Historical data and model simulations support the following conclusion. Inflation is low during stock market booms, so that an interest rate rule that is too narrowly focused on inflation destabilizes asset markets and the broader economy. Adjustments to the interest rate rule can remove this...

This paper investigates the performance, in several small-scale models of the Japanese economy, of an operational monetary policy rule related to ones previously considered for the United States. The rule dictates settings of the monetary base that are designed to produce values of nominal GNP...

In analyses of "liquidity trap" problems associated with the zero lower bound (ZLB) on nominal interest rates, it is important to emphasize the difference between policy rule changes, intended to help escape an existing ZLB situation, and maintained policy rules designed so as to avoid ZLB...

Recent mainstream monetary policy analysis focuses on rational expectation solutions that are uniquely stable. A number of recent studies have examined the question of whether typical New Keynesian (NK) models, with policy rules that satisfy the Taylor principle, also exhibit solutions with...

We describe two examples which illustrate in different ways how money and credit may be useful in the conduct of monetary policy. Our first example shows how monitoring money and credit can help anchor private sector expectations about inflation. Our second example shows that a monetary policy...

It has become increasingly evident that the Federal Reserve's official strategy of the past decade, involving the adherence to target paths for monetary aggregates, is not currently being utilized to any significant extent. While some commentators welcome and others deplore this development,...