Monetary policy in the US is characterized by a substantial degree of inertia. While in principle this may well be the outcome of an optimizing central bank behavior, the ability of any derived policy rule to match the data relies on so large weights for interest rate smoothing into policy...

We integrate banks and the coexistence of bank and bond financing into an otherwise standard New Keynesian framework. There are two policy-makers: a central banker, who can decide on short-term nominal interest rates, and a macroprudential policy-maker, who can vary aggregate capital...

This paper investigates the circumstances under which a central bank is more or less likely to deviate from the optimal monetary policy rule. The research questions is addressed in a simple New Keynesian dynamic stochastic general equilibrium (DSGE) model in which monetary policy deviations...

This paper evaluates the performance of optimal simple policy rules in the presence of news shocks. It is shown that the inclusion of forward-looking elements enhances the performance of simple optimized interest rate rules when agents learn about future disturbances in advance. We provide a...

We present a simple neoclassical model to explore how an aggregate bank-capital requirement can be used as a macroeconomic policy tool and how this additional tool interacts with monetary policy. Aggregate bank-capital requirements should be adjusted when the economy is hit by cost-push shocks...

We depart from the common reaction function-based approach used to infer central bank preferences. Instead, we extract the tone from the textual information in the central bank communication using both a lexicon-based approach and a language model. We combine the tone with real-time information...

Monetary policy is most effective when public beliefs about future policies are actively managed. This is the appeal of policy rules and commitment strategies, typically absent under discretion. But when a policymaker has some private information - as is the case in reality - belief management...

How should central banks optimally aggregate sectoral inflation rates in the presence of imperfect labor mobility across sectors? We study this issue in a two-sector New-Keynesian model and show that a lower degree of sectoral labor mobility, ceteris paribus, increases the optimal weight on...

This paper presents a toolkit1 for generating optimal policy projections. It makes five contributions. First, the toolkit requires a minimal set of inputs: only a baseline projection for target and instrument variables and impulse responses of those variables to policy shocks. Second, it solves...

We analyse the implications of asymmetric monetary policy rules by estimating Markovswitching DSGE models for the euro area (EA) and the US. The estimations show that until mid-2014 the ECB's response to inflation was more forceful when inflation was above 2% than below 2%. Since then, the ECB's...