In recent years a growing consensus has emerged for price stability as the overriding, long-run goal of monetary policy. However, despite this consensus, the following question still remains: how should monetary policy be conducted to achieve the price stability goal? This paper examines the...

The paper extends previous analysis of closed-economy inflation targeting to a small open economy with forward-looking aggregate supply and demand with some microfoundations, and with stylized realistic lags in the different transmission channels for monetary policy. The paper compares targeting...

The paper analyses various mechanism through which monetary union in Euroep may affect unemployment. The focus is on the political incentives for labour-market reform. There will be more reform outside than inside the EMU to the extent that a national inflation bias can be reduced. But if there...

We define and study transparency, credibilitym and reputation in a model where the central bank's characteristics are unobservable to the private sector and are inferred from the policy outcome. A low-credibility bank optimally conducts a more inflationary policy than a high-credibility bank, in...

The first section of this paper presents a model of the economy and poses the problem of optimal monetary policy. The second characterizes the responses of endogenous variables, including nominal interest rates, to shocks under an optimal regime, and highlights the advantages of commitment, by...

This paper discusses how price stability can be defined and how price stability can be maintained in practive. Some lessons for the Eurosystem are also considered.

We examine a central bank's endogenous choice of degree of control and degree of transparency, under both commitment and discretion. We argue that discretion is the more realistic assumption for the choice of control and that commitment is more realistic for the choice of transparency.

Central banks now generally agree that conventional monetary aggregates are of little use as targets or even indicators for monetary policy, owing to the instability of money demand relations in economies with well-developed financial markets.But monetary theory has provided little guidance for...