We define and study transparency, credibility, and reputation in a model where the central bank's characteristics are unobservable to the private sector and are inferred from the policy outcome. A low-credibility bank optimally conducts a more inflationary policy than a high-credibility bank, in...

In the new situation with flexible exchange rates, monetary policy in Europe will have to rely more on indicators than previously under fixed rates. One of the potential indicators, the forward interest rate curve, can be used to indicate market expectations of the time-paths of future short...

The use of forward interest rates as a monetary policy indicator is demonstrated, using Sweden 1992-1994 as an example. The forward rates are interpreted as indicating market expectations of the time- path of future interest rates, future inflation rates, and future currency depreciation rates....

Most recent research on monetary-policy rules is restricted to considering a commitment to simple instrument rules, where the central-bank instrument is a simple function of available information about the economy, like the Taylor rule. However, a commitment to a simple instrument rule appears...

Monetary policy can achieve average inflation equal to a given inflation target and, at best, a good compromise between inflation variability and output-gap variability. The complex transmission mechanism, varying lags and strength of the effects through different channels, unpredictable shocks...

Most recent research on monetary-policy rules is restricted to considering a commitment to simple instrument rules, where the central-bank instrument is a simple function of available information about the economy, like the Taylor rule. However, a commitment to a simple instrument rule appears...

Monetary policy can achieve average inflation equal to a given inflation target and, at best, a good compromise between inflation variability and output-gap variability. The complex transmission mechanism, varying lags and strength of the effects through different channels, unpredictable shocks...

The introduction of inflation targeting has led to major progress in practical monetary policy. Recent debate has focused on the interest-rate assumption underlying published projections of inflation and other target variables. This paper discusses the role of alternative interest-rate paths in...

"Forecast targeting," forward-looking monetary policy that uses central-bank judgment to construct optimal policy projections of the target variables and the instrument rate, may perform substantially better than monetary policy that disregards judgment and follows a given instrument rule. This...

This paper studies the relationship between inflation, output, money and interest rates in the euro area, using data spanning 1980-2000. The P model is shown to have considerable empirical support. Thus, the "price gap" or, equivalently, the "real money gap" (the gap between current real...