Ignoring the existence of the zero lower bound on nominal interest rates one considerably understates the value of monetary commitment in New Keynesian models. A stochastic forward-looking model with lower bound, calibrated to the U.S. economy, suggests that low values for the natural rate of...

We determine optimal monetary policy under commitment in a forwardlooking New Keynesian model when nominal interest rates are bounded below by zero. The lower bound represents an occasionally binding constraint that causes the model and optimal policy to be nonlinear. A calibration to the U.S....

Earlier studies of the seigniorage inflation model have found that the high-inflation steady state is not stable under adaptive learning. We reconsider this issue and analyze the full set of solutions for the linearized model. Our main focus is on stationary hyperinflationary paths near the...

We study the distributional consequences of housing price, bond price and equity price increases for Euro Area households using data from the Household Finance and Consumption Survey (HFCS). The capital gains from bond price and equity price increases turn out to be concentrated among relatively...

We estimate a forward-looking New Keynesian Phillips Curve (NKPC) for the U.S. using data from the Survey of Professional Forecasters as proxy for expected inflation. We obtain significant and plausible estimates for the structural parameters of the NKPC (the discount factor and the share of...

We study optimal nominal demand policy in an economy with monopolistic competition and flexible prices when firms have imperfect common knowledge about the shocks hitting the economy. Parametrizing firms' information imperfections by a (Shannon) capacity parameter that constrains the amount of...

We determine optimal monetary policy under commitment in a forwardlooking New Keynesian model when nominal interest rates are bounded below by zero. The lower bound represents an occasionally binding constraint that causes the model and optimal policy to be nonlinear. A calibration to the U.S....

We determine optimal discretionary monetary policy in a New-Keynesian model when nominal interest rates are bounded below by zero. Nominal interest rates should be lowered faster in response to adverse shocks than in the case without bound. Such ‘preemptive easing’ is optimal because...

We show that unexpected price level movements generate sizable wealth redistribution in the Euro Area (EA), using sectoral accounts and newly available data from the Household Finance and Consumption Survey. The EA as a whole is a net loser of unexpected price level decreases, with Italy,...

We document a new stylized fact for the life-cycle behavior of consumer prices: relative to a narrowly defined set of competing products, the price of individual products tends to fall over the product lifetime. This holds true for more than 90% of the expenditure items underlying the U.K....