We explore the implications of asset price volatility for the management of monetary policy. We show that it is desirable for central banks to focus on underlying inflationary pressures. Asset prices become relevant only to the extent they may signal potential inflationary or deflationary...

This paper attempts to provide a step towards understanding the role of financial intermediaries ("banks") in aggregate economic activity. We first develop a model of the intermediary sector which is highly simplified, but rich enough to motivate several special features of bauks. Of particular...

Is long-run economic growth exogenous? To address this question, we show that the empirical framework of Mankiw, Romer, and Weil (1992) can be extended to test any growth model that admits a balanced growth path; and we use that framework both to revisit variants of the Solow growth model and to...

This paper develops a dynamic general equilibrium model that is intended to help clarify the role of credit market frictions in business fluctuations, from both a qualitative and a quantitative standpoint. The model is a synthesis of the leading approaches in the literature. In particular, the...

Proposals for 'inflation targeting' as a strategy for monetary policy leave open the important operational question of how to determine whether current policies are consistent with the long-run inflation target. An interesting possibility is that the central bank might target current...

In recent years a number of industrialized countries have adopted a strategy for monetary policy known as `inflation targeting.' We describe how this approach has been implemented in practice and argue that it is best understood as a broad framework for policy, which allows the central bank...

Extending the approach of Bernanke and Blinder (1992), Strongin (1992), and Christiano, Eichenbaum, and Evans (1994a, 1994b), we develop and apply a VAR-based methodology for measuring the stance of monetary policy. More specifically, we develop a 'semi-structural' VAR approach, which extracts...

First, we show that the interest rate on Federal funds is extremely informative about future movements of real macroeconomic variables, more so than monetary aggregates or other interest rates. Next, we argue that the reason for this forecasting is that the funds rate sensitively records shocks...

Applied macroeconomists (e.g., Eckstein and Sinai (1986)) have stressed the role of financial variables, such as firm balance sheet positions, in the determination of investment spending and output. Our paper presents a formal analysis of this link. We develop a model of the process of...