Money illusion is frequently invoked and frequently resisted by economists. Resisted as it contradicts the maximizing paradigm of microeconomic theory and invoked since a tendency to think in nominal rather than real terms becomes evident in the behavior of agents. This paper rationalizes money...

The recent declines in China's financial account balance ended the “twin surplus” era and led to a modest decline in the stock of official reserves, which reflects a reversal in expectations for the Chinese currency. Negative balances, which have been visible in China's financial balances...

Money illusion is "frequently invoked and frequently resisted" by economists. Resisted as it contradicts the maximizing paradigm of microeconomic theory and invoked since a tendency to think in nominal rather than real terms becomes evident in the behavior of agents. This paper rationalizes...

The recent declines in China's financial account balance ended the "twin surplus" era and led to a modest decline in the stock of official reserves, which reflects a reversal in expectations for the Chinese currency. Negative balances, which have been visible in China's financial balances since...

The rule bounded currency board-system is a contribution to a process of convergence between the price level of the currency board-country and the anchor currency-country. However this strategy includes the risk of an inadequate provision with liquidity in the currency board-country. In the long...

To what extent are US and Euro Area (EA) inflation expectations determined by foreign shocks? How do transmissions change during the great recession and European sovereign debt crisis? We address these questions with a flexible structural VAR model of weekly financial markets’ inflation...

Common shocks, similarities in central bank reaction functions, and international trade potentially produce common components in international inflation rates. This paper characterizes such links in international inflation rates with a dynamic latent factor model that decomposes 64 national...

Does the exchange rate regime matter for inflation and economic activity? This paper argues that it does and that there are substantial benefits to a fixed exchange rate regime. At the heart of these benefits lies an increase in commitment for the central bank that reduces the inflationary bias...

This paper provides a baseline general-equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms that set prices one period in advance. Strict adherence to inward-looking policy objectives such as the stabilization of domestic output cannot be optimal...