First, we modify the Barro-Gordon model so that a credibility-stabilization tradeoff will remain, even when a performance contract of the type envisaged by Walsh (1995) is imposed on the central bank governor. We do this by modeling a real interest rate bias along with the inflation bias. Then,...

A literature has grown up around papers by Kydland and Prescott (1977) and Barro and Gordon (1983) which shows how governments have an incentive to inflate the economy (to generate extra output) then the private sector will anticipate this and the economy will stick at a high inflation...

This paper reviews the literature on what the zero bound to nominal interest rates implies for the conduct of monetary policy. The aim is to evaluate the risks of hitting the zero bound; and to evaluate policies that are said to be able to reduce that risk, or policies that are proposed as means...

This paper quantifies for the United Kingdom the general equilibrium costs of individuals holding cash to economise on 'shopping time'. These are a subset of a wider range of costs caused by inflation. The paper tests whether or not money balances tend to a finite number as nominal interest...

This paper outlines some problems with the methods often used to construct measures of real 'disequilibria' or 'gaps' (eg the output gap) and to examine their relationship with inflation. It then offers a structural vector autoregression alternative which is used to construct estimates of...

Although the target of monetary policy is clear, there have been suggestions that the conduct of monetary policy is improved by monitoring "trimmed mean" inflation rates, the mean of some central portion of the distribution of price changes. This paper assesses critically the theoretical and...

This paper addresses the question of whether there is downward rigidity in money wages and prices. It is an issue that is relevant to the choice of the level of the inflation target, as it has been argued that targeting too low a level of inflation will be harmful when downward rigidities exist....

This paper tests for unbiasedness in inflation expectations drawn from a survey of U.K. employees by Gallup. It focuses on the econometric difficulties presented by having a small sample, there being overlapping forecast horizons, and by trying to make inference when the data appear to be...

This paper reports the main results of a survey carried out by the Bank in the autumn of 1995 of the price-setting behaviour of 654 U.K. companies. It elaborates on an article in the May 1996 Bank of England Quarterly Bulletin. In the year preceding the survey, the average company reviewed its...

One of the problems facing policymakers is that recent releases of data are liable to subsequent revisions. This paper discusses how to deal with this, and is in two parts. In the normative part of the paper, we study the design of monetary policy rules in a model that has the feature that data...