This paper employs stochastic simulations of a small structural rational expectations model to investigate the consequences of the zero bound on nominal interest rates. We find that if the economy is subject to stochastic shocks similar in magnitude to those experienced in the U.S. over the...

This paper studies monetary policy rules in a small open economy with Inflation Targeting, incomplete pass-through and rigid nominal wages. The paper shows that, when nominal wages are fully flexible and pass-through is low to moderate, the monetary authority should target the consumer price...

We study optimal monetary policy design in a simple model that deviates from the linear-quadratic paradigm and provides a rationale for the practice of inflation zone targeting. We show that the presence of either zone-quadratic preferences or a zone-linear relationship between inflation and...

In this paper we estimate a small model of the euro area to be used as a laboratory for evaluating the performance of alternative monetary policy strategies. We start with the relationship between output and inflation and investigate the fit of the nominal wage contracting model due to Taylor...

The paper examines the factors of global inflation acceleration in 2021-2022. We consider primarily the developed economies, where rates of inflation over the last two years have exceeded multi-year highs and have significantly exceeded target levels. We find that the cause of accelerating...

Over the last quarter of a century, inflation targeting has become a popular monetary regime. Nevertheless, empirical evaluations of IT have shown contradictory results. Part of the reason is that IT in and of itself constitutes an endogenous decision and thus needs to be properly instrumented....

This paper proposes new measures of the effectiveness of inflation targeting (IT) and evaluates its main drivers in a (large) sample of advanced economies (AEs) and emerging market and developing economies (EMDEs). Using synthetic control methods, we find that IT has heterogeneous effects on...

This study analyses the aspect of inflation expectations management in the context of inflation targeting by particularly focusing on the impact of exchange rate pass-through to inflation expectations in a small open economy. We also augment the inflation expectations function with GDP,...

This paper investigates the performance of optimised interest rate rules when there is uncertainty about a key determinant of the monetary transmission mechanism, namely the degree of persistence characterising the inflation process. The paper focuses on the euro area and utilises two variants...

The purpose of this short paper is to show that inflation “band” targeting can solve the “time inconsistency” problem that exists under inflation “point” targeting by setting a relevant target range. Moreover, we show that inflation band targeting has the following two advantages,...