We show that the credibility gain from permanently committing to a fixed exchange rate by joining the European Monetary Union can outweigh the loss from giving up independent monetary policy if the domestic monetary authority does not enjoy full credibility. Using a DSGE model, this paper shows...

Over the last twenty years the level and volatility of inflation decreased across industrial countries. The inflation behaviour can be explained by a shift in monetary policy or by a lucky period of low volatility in business cycle shocks. To test theluck hypothesis we examine the inflation...

We develop a general equilibrium model of an emerging market economy where productivity growth differentials between tradable and non-tradable sectors result in an equilibrium appreciation of the real exchange ratethe so-called Balassa-Samuelson effect. The paper explores the dynamic properties...

In this paper, I revisit an old question in the analysis of monetary policy that was first studied by Rogoff (1985) - should central banks pursue objectives that differ systematically from social welfare? I investigate how the answer to this question is affected by the degree of transparency...

During the past three years, central banks have faced challenges that few foresaw during the period known as the Great Moderation. During the crisis, central banks have responded with traditional interest rate tools, been forced to deal with the zero lower bound on nominal interest rates, and...

By the end of the Great Moderation, over two dozen central banks were formal inflation targeters, and others, such as the Federal Reserve, the European Central Bank, and the Swiss National Bank behaved essentially as inflation targeters even though they were resistant to identifying themselves...