This paper employs stochastic simulations of a small structural rational expectations model to investigate the consequences of the zero bound on nominal interest rates. We find that if the economy is subject to stochastic shocks similar in magnitude to those experienced in the U.S. over the...

This paper proposes new measures of the effectiveness of inflation targeting (IT) and evaluates its main drivers in a (large) sample of advanced economies (AEs) and emerging market and developing economies (EMDEs). Using synthetic control methods, we find that IT has heterogeneous effects on...

We consider monetary and fiscal policy interactions in a New-Keynesian model of a closed economy with a government solvency constraint. We study the problem of optimal delegation in the discretionary game with two optimising policymakers and provide a welfare ranking of different leadership...

We study alternative monetary policy strategies in the presence of the lower bound on nominal interest rates and a low equilibrium real rate using an estimated DSGE model for the euro area. We find that simple feedback rules that implement inflation targeting result in a binding lower bound...

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...

Central banks (CB) around the world are currently exploring the implications of issuing a new form of sovereign currency known as Central Bank Digital Currency (CBDC). Introducing CBDC is a compelling need for governments and CBs alike, as powerful private players have already taken the lead in...

Not since the Great Depression have monetary policy matters and institutions weighed so heavily in commercial, financial, and political arenas. Apart from the eurozone crisis and global monetary policy issues, for nearly two years all else has counted for little more than noise on a relative...

This paper revisits the argument that the stabilisation bias that arises under discretionary monetary policy can be reduced if policy is delegated to a policymaker with redesigned objectives. We study four delegation schemes: price level targeting, interest rate smoothing, speed limits and...

The U.S. Federal Reserve has committed hundreds of billions of dollars in unprecedented lending activities and purchases of mortgage-backed securities based upon its authority under the Federal Reserve Act, and particularly upon its interpretation of Section 13(3), a formerly untested and unused...

Estimation of conventional Taylor rules for Brazil, Chile, Colombia and Peru shows that central banks increase their repo rate in response to increases in the output gap and, except in Peru, to deviations of inflation expectations from target. Using a Markov-Switching methodology, it is found...