We introduce external risks, in the form of shocks to the level and volatility of world interest rates, into a small open economy model subject to the risk of sudden stops—large recessions together with abrupt reversals in capital inflows| and characterize optimal macroprudential policy in...

Distributional consequences typically receive limited attention in economic models that analyze the effects of monetary and financial sector policies. These consequences deserve more attention since financial markets are incomplete, imperfect, and economic agents' access to them is often...

In the last two decades, there has been a global sea change in the theory and practice of central banking. The currently dominant ‘best practice’ approach to central banking consists of the following: (1) central bank independence (2) a focus on inflation fighting (including adopting formal...

Contrary to popular belief, the history of central banking begins much earlier than 1800. Many current issues of central bank policy can be traced back to the public giro banks of the 15th century, and have been discussed in numerous essays at least since the 17th century. Are the same debates...

It is commonplace to speak of central bank "independence" as if it were both a reality and a necessity. While the Federal Reserve is subject to the "dual mandate", it has substantial discretion in its interpretation of the vague call for high employment and low inflation. Most important, the...

Following the Treasury-Federal Reserve Accord of March 3, 1951, the Federal Open Market Committee (FOMC) focused on free reserves - the difference between excess reserves (reserve deposits in excess of reserve requirements) and borrowed reserves - as the touchstone of U.S. monetary policy....

Following the Treasury–Federal Reserve Accord of March 3, 1951, the Federal Open Market Committee (FOMC) focused on free reserves—the difference between excess reserves (reserve deposits in excess of reserve requirements) and borrowed reserves—as the touchstone of U.S. monetary policy....

The Eurozone today is going into the same deflationary situation that the U.S. did under Jackson's destruction of the Second Bank, and the post-Civil War budget surpluses that deflated the economy. But whereas the Fed's creation was designed to inflate the U.S. economy, Europe's European Central...

This article questions the model of central bank independence by considering the mainstream empirical literature that purports to correlate central bank independence with lower inflation rates. The studies, conducted mostly prior to the 2008 financial crisis, mimic the flaws in the risk...