Evidence on the interdependency between monetary policy and the state of thebanking system is scarce. We suggest an integrated micro-macro approach with twocore virtues. First, we measure the probability of bank distress directly at the banklevel. Second, we integrate a microeconomic hazard...

The uniqueness of bounded local equilibria under interest rate rules is analyzed in a model with sticky information à la Mankiw and Reis (2002). The main results are tighter bounds on monetary policy than in sticky-price models, irrelevance ofthe degree of output-gap targeting for determinacy,...

This paper investigates the effect of interest rate policy on stock marketbubbles and trading behavior in experimental asset markets. For this purpose, weintroduce the possibility of investing in interest bearing bonds to the classicallaboratory asset market design of Smith, Suchanek, and...

Just as monetary policy at the strategic level has undergone significant changes over the years, so has its day-to-day implementation. This paper documents the key features of 17 central banks' monetary operating frameworks as of early 2007 and discusses their major developments over the...

There is abundant evidence that many individuals violate the rationality assumptions routinely made in economics. However, powerful evidence also indicates that violations of individual rationality do not necessarily refute the aggregate predictions of standard economic models that assume full...

This paper extends and modifies the Keynesian critique of inflation targetingwith reference to stabilisation policy in emerging market economies. The IMF‘basic monetary programming framework’ for developing countries usesgovernment borrowing and the exchange rate as policy instruments in...

Does fractionalization change over time? If so, are there any substantial implications foreconomic performance? To answer such questions, we construct a new panel data set withfractionalization measures for 26 former communist countries covering the period from 1989to 2002...

The paper investigates the effect of interest rate policy on price bubbles, trading behavior, and portfolio choice in experimental stock markets. In a series of experiments, participants trade an asset over 15 periods. Alternatively, the participants can invest money in interest-bearing bonds....

Time consistency problems can arise when environmental taxes are employedto encourage firms to take irreversible abatement decisions. Setting a high carbontax, for instance, would induce firms to invest in low-carbon technology,yet once investment has occurred the government can then reduce the...

We use a two-country model with a central bank maximizing union-wide welfareand two fiscal authorities minimizing comparable, but slightly differentcountry-wide losses. We analyze the rivalry between the three authorities inseven static games. Comparing a homogeneous with a heterogeneous...