We summarize some methods useful in formulating and solving Hansen-Sargent robust control problems, and suggest extensions to discretion and simple rules. Matlab, Octave, and Gauss software is provided. We illustrate these extensions with applications to the term structure of interest rates, the...

A structural rational expectations model of U.S. monetary policy is used to make a counterfactual experiment of a strongly inflation averse Federal Reserve Bank. Results for U.S. interest rates, output, and inflation over 1965-1999 are discussed.

This paper is a selective survey of new or recent methods to extract information about market expectations from asset prices for monetary policy purposes. Traditionally, interest rates and forward exchange rates have been used to extract expected means of future interest rates, exchange rates...

The main instrument of monetary policy in industrialized countries is currently a short-term interest rate. It typically remains unchanged during long spans of time. This paper tries to answer three questions. Why do Central Banks change targeted interest rates so seldom? How should we estimate...

We summarize some methods useful in formulating and solving Hansen-Sargent robust control problems, and suggest extensions to discretion and simple rules. Matlab, Octave, and Gauss software is provided. We illustrate these extensions with applications to the term structure of interest rates, the...

A structural rational expectations model of U.S. monetary policy is used to make a counterfactual experiment of a strongly inflation averse Federal Reserve Bank. Results for U.S. interest rates, output, and inflation over 1965-1999 are discussed.

We investigate, theoretically and empirically, the relationship between monetary policy and the term structure of interest rates. In particular, we show in a dynamic macroeconomic model that if monetary policy reveals information about economic developments, interest rates of all maturities move...

Historical estimates of the informational content in the yield curve may not be relevant after a change in monetary policy. This study uses a small dynamic rational expectations model with staggered price setting to study how monetary policy affects the relation between nominal interest rates,...

The British pound left the ERM on 16 September 1992 after a period of turbulence. UK monetary policy soon shifted to lower short interest rates and an inflation target was announced. This paper uses daily option prices to estimate how the market's probability distribution of the future...

In a simple dynamic macroeconomic model, it is shown that uncertainty about structural parameters does not necessarily lead to more cautious monetary policy, refining the accepted wisdom concerning the effects of parameter uncertainty on optimal policy. In particular, when there is uncertainty...