This paper examines the effectiveness of interest rate policy to stabilize the economy in general and to control inflation in particular. The paper utilizes a dynamic model which has firmer microeconomic foundations. The model is used to establish links between inflation and other variables such...

Using a New Keynesian open economy model, where the supply side effects of the exchange rate pass through as well as the cost channel of monetary policy transmission are taken into account, this paper evaluates the possibility of the price puzzle, which refers to anomalous behavior of inflation...