This paper studies optimal discretionary monetary policy in the presence of uncertainty about the degree of financial frictions. Changes in the degree of financial frictions are modelled as changes in parameters of a hybrid New-Keynesian model calibrated for the UK, following Bean, Larsen and...

Under a conventional policy rule, a central bank adjusts its policy rate linearly according to the gap between inflation and its target, and the gap between output and its potential. Under 'the opportunistic approach to disinflation' a central bank controls inflation aggressively when inflation...

In this paper we derive optimal monetary targeting rules under various assumptions about fiscal behavior. In contrast to the existing literature we use a linear-quadratic approach and allow for dynamic games between the two policy authorities. It is shown that optimal monetary behavior is...

The subprime crisis produced bizarre movements in real and financial aggregates. In particular, the presence of an unusual relationship between quantitative easing policies and credit market conditions led to an unprecedented drop in the real economic activity. In a Brainard (1967)'s parameter...

We use high-frequency intraday interest rate data to measure euro area monetary policy shocks on the days of ECB interest rate announcements between 2002 and 2013. In line with Gürkaynak et al. (2005), we look at monetary policy shocks along two time dimensions: one related to the current level...

In this paper, we analyze how lack of credibility and transparency of monetary and fiscal policies undermines the effectiveness of macroeconomic policies to isolate the economy from commodity price fluctuations. We develop a general equilibrium model for a commodity-exporting economy where macro...

It is widely argued that Europe's unified monetary policy calls for the international coordination at the fiscal level. We survey the issues involved with such coordination of fiscal policy as a demand management tool and we use a simple model to investigate the circumstances under which...

Under a conventional policy rule, a central bank adjusts its policy rate linearly according to the gap between inflation and its target, and the gap between output and its potential. Under the opportunistic approach to disinflation a central bank controls inflation aggressively when inflation is...

We analyse the stability of countries within a monetary union in the face of asymmetric shocks, using a simple but widely applicable model. We show that members of the union may be subject to severe cycles following asymmetric shocks if there is a significant backward looking element in...

We develop a general mandate framework for delegating monetary policy to an instrument-independent, but goal-dependent central bank. The goal of the mandate consists of: (i) a simple quadratic a loss function that penalizes deviations from target macroeconomic variables; (ii) a form of a...