This paper examines the welfare implications of managing asset-price with consumer-price inflation targeting by monetary authorities who have to learn the laws of motion for both inflation rates. Our results show that the Central Bank can reduce the volatility of consumption and asset price...

We study how determinacy and learnability of global rational expectations equilibrium may be accected by monetary policy in a simple, two country, New Keynesian framework. The two blocks may be viewed as the U.S. and Europe, or as regions within the euro zone. We study cases in which optimal...

In this paper, we examine the cost of insurance against model uncertainty for the Euro area considering four alternative reference models, all of which are used for policy-analysis at the ECB. We find that maximal insurance across this model range in terms of a Minimax policy comes at moderate...

Several papers have documented how the reaction function of the U.S. monetary authority has been passive, and destabilising, before Volcker"s appointment, and active and stabilising since then. In this paper we first compare the two sub-periods in terms of several key business-cycle 'stylised...

Various approaches to optimal monetary policy have been used to select time-invariant policy rules, including the timeless perspective approach by Woodford (1999) and the unconditional expected utility criterion of McCallum (2000). In this paper, we argue instead that policy rules should be...

This paper uses a small, calibrated forward-looking model of the euro-area economy to investigate the implications of incomplete information about potential output for the conduct and the design of monetary policy. Three sets of issues are examined. First, the certainty-equivalent optimal policy...

In this paper, we study the effectiveness of monetary policy in a severe recession and deflation when nominal interest rates are bounded at zero. We compare two alternative proposals for ameliorating the effect of the zero bound: an exchange-rate peg and price-level targeting. We conduct this...

We study the effects of optimized monetary policy in a semi-structural, estimated small open economy in situations where the policymaker has either complete or less than complete confidence in the model being free from misspecification errors. We use the robust control techniques developed by...