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Optimal Monetary Policy Under Uncertainty in DSGE Models : A Markov Jump-Linear-Quadratic Approach

Svensson, Lars E. O. - 2010

We study the design of optimal monetary policy under uncertainty in a dynamic stochastic general equilibrium models. We use a Markov jump-linear-quadratic (MJLQ) approach to study policy design, approximating the uncertainty by different discrete modes in a Markov chain, and by taking...

Persistent link: https://www.econbiz.de/10012759442

The Foreign Exchange Risk Premium in a Target Zone with Devaluation Risk

Svensson, Lars E. O. - 2021

The foreign exchange risk premium in an exchange rate target zone regime with devaluation/realignment risks is derived … devaluation/realignment risk, is taken into account. The risk premium is then the sum of two separate risk premia, arising from … real and nominal exchange rate premia are considered. The real and nominal risk premia from movements within the band are …

Persistent link: https://www.econbiz.de/10013222618

Monetary Policy with Model Uncertainty : Distribution Forecast Targeting

Svensson, Lars E. O.; Williams, Noah - 2021

We examine optimal and other monetary policies in a linear-quadratic setup with a relatively general form of model uncertainty, so-called Markov jump-linear-quadratic systems extended to include forward-looking variables. The form of model uncertainty our framework encompasses includes: simple...

Persistent link: https://www.econbiz.de/10013218440

Assessing Target Zone Credibility : Mean Reversion and Devaluation Expectations in the Erm 1979-1992

Svensson, Lars E. O. - 2022

The paper presents estimates of devaluation expectations for six EMS currencies relative to the Deutsche mark, for the period March 1979-May 1990. The estimation method is simple and operational, and consistently generates sensible results. The estimates are constructed by the adjusting interest...

Persistent link: https://www.econbiz.de/10013321595

European Exchange Rate Credibility Before the Fall

Rose, Andrew Kenan; Svensson, Lars E. O. - 2022

Realignment expectations which measure exchange rate credibility are analyzed for European exchange rates, using daily financial data since the inception of the EMS. It is difficult to find economically meaningful relationships between realignment expectations and macroeconomic variables,...

Persistent link: https://www.econbiz.de/10013324139

The Simplest Test of Target Zone Credibility

Svensson, Lars E. O. - 2022

A credible target zone exchange rate regime with a given exchange rate band implies bounds on the amount of depreciation and appreciation of the domestic currency. This implies, for given foreign interest rates, bounds on the domestic-currency rate of return on foreign investment: a...

Persistent link: https://www.econbiz.de/10013324472

Eurosystem Monetary Targeting : Lessons from U.S. Data

Rudebusch, Glenn D. - 2010

Using a small empirical model of inflation, output, and money estimated on U.S. data, we compare the relative performance of monetary targeting and inflation targeting. The results show that monetary targeting would be quite inefficient, with both higher inflation and output variability. This is...

Persistent link: https://www.econbiz.de/10013137167

Money and Inflation in the Euro Area : A Case for Monetary Indicators?

Gerlach, Stefan; Svensson, Lars E. O. - 2021

This paper studies the relationship between inflation, output, money and interest rates in the euro area, using data spanning 1980 2000. The P* model is shown to have considerable empirical support. Thus, the price gap' or, equivalently, the real money gap' (the gap between current real balances...

Persistent link: https://www.econbiz.de/10013312477

Escaping from a Liquidity Trap and Deflation : The Foolproof Way and Others

Svensson, Lars E. O. - 2021

Existing proposals to escape from a liquidity trap and deflation, including my Foolproof Way,' are discussed in the light of the optimal way to escape. The optimal way involves three elements: (1) an explicit central-bank commitment to a higher future price level; (2) a concrete action that...

Persistent link: https://www.econbiz.de/10013228748

Monetary Policy Issues for the Eurosystem

Svensson, Lars E. O. - 2021

The paper discusses the choice between inflation targeting and monetary targeting as a strategy for the Eurosystem, the actual strategy the Eurosystem announced in the fall of 1998, the framework for policy decisions appropriate for achieving the goals of the Eurosystem, the role of exchange...

Persistent link: https://www.econbiz.de/10013247637