When the nominal interest rate reaches its zero lower bound, credibility is crucial for conducting forward guidance. We determine optimal policy in a New Keynesian model when the central bank has imperfect credibility and cannot set the nominal interest rate below zero. In our model, an...

The considerable amount of research in recent years on New Keynesian, open-economy models - models with nominal price rigidities and intertemporally maximizing agents - has yielded fresh insights for what Alan Blinder has called the "dark art" of making monetary policy. The literature has made...

We explore the importance of the nature of nominal price and wage adjustment for the design of effective monetary policy strategies, especially at the zero lower bound. Our analysis suggests that sticky-price and sticky-information models fit standard macroeconomic time series comparably well....