We re-connect money to in.ation using Goodfriend and McCallum's (2007) model where banks supply loans to cash-in-advance constrained consumers on the basis of the value of collateral provided and the monitoring skills of banks. We show that when shocks to monitoring and collateral dominate those...

The authors examine the implications for the optimal interest rate rule that follow from relaxing the assumption that the policy-maker's loss function is quadratic. They investigate deviations from quadratics for both symmetric and asymmetric preferences for a single target and find that (i)...

This paper examines UK business cycle fluctuations in 22 complete cycles since 1871. We catalogue the incidence and typical duration of UK business cycles. The summary statistics of the economy are explored, including the spectral density, sample covariation and cross spectrum of macroeconomic...

Explicit modelling of factor markets clarifies two fundamental aspects of the New Keynesian Phillips Curve (NKPC). First, we clarify the relationship between output and marginal cost. Second, for the NKPC in inflation-output space, we identify the key stochastic influences on inflation without...

In a New Keynesian macroeconomic model under credible commitment, price level targeting dominates inflation targeting. But with sufficient inflation aversion the inflation targeting central bank can produce quantitatively similar results to one targeting the price level. The current degree of...

Forward looking agents with expectational errors provide a problem for monetary policy. We show that under such conditions a standard interest rate rule may not achieve determinacy. We suggest a modification to the standard policy rule that guarantees determinacy in this setting, which involves...

In this paper we review some fundamental issues that have been identified by macroeconomists in discussing the co-ordination of monetary and fiscal policy. As Sargent and Wallace (1981) graphically illustrated, the consolidated public sector present-value budget constraint means that monetary...

Monetary authorities often seem reluctant to discuss the conduct of monetary policy. There is a concern that greater openness in monetary policy-making may lead to volatility in financial markets, and specifically in interest rates. To date there is very little direct empirical evidence; however,...

We develop two variants of an open economy general equilibrium model employing Blanchard-Yaari life overlapping generations, which are shown to capture a number of important aspects of the UK economic cycle. We analyse the equilibrium stochastic processes of the model’s endogenous variables in...

In the canonical monetary policy model, money is endogenous to the optimal path for interest rates and output. But when liquidity provision by banks dominates the demand for transactions money from the real economy, money is likely to contain information for future output and inflation because...