In practice, central banks have been confronted with a trade-off between stabilising inflation and output when dealing with rising oil prices. This contrasts with the result in the standard New Keynesian model that ensuring complete price stability is the optimal thing to do, even when an oil...

While consumption habits have been utilised as a means of generating a hump shapedoutput response to monetary policy shocks in sticky-price New Keynesian economies,there is relatively little analysis of the impact of habits (particularly, external habits) onoptimal policy. In this paper we...

Caplin & Leahy (1996) show that, when central bankers learn about theeconomy by observing its response to policy shock, cautious monetary policymay be ineffectual as private agents correctly anticipate that today's interestrate cuts are likely to be followed by future cuts. The central banker...

Recent theoretical work shows that changes in the volatility of inflation and/or unem-ployment affect equilibrium in°ation outcomes when the central banker's loss functionis asymmetric. We show that previous evidence offered in support of the propositionthat the volatility of unemployment helps...

This paper studies a overlapping generations economy with capital where limitedcommunication and stochastic relocation create an endogenous transactions role for…at money. We assume a production function with a knowledge-externality (Romer-style) that nests economies with endogenous growth (AK...

Faced with real and nominal shocks, what should a benevolent central bankdo, …x the money growth rate or target the inflation rate? In this paper, wemake a …rst attempt at studying the optimal choice of monetary policy in-struments in a micro-founded model of money. Speci…cally, we produce...