The paper discusses several issues related to how monetary policy should be conducted in an era of price stability. Low inflation (with base drift in the price level) and price-level stability (without such base drift) are compared, and a suitable loss function (corresponding to flexible...

This paper is a selective survey of new or recent methods to extract information about market expectations from asset prices for monetary policy purposes. Traditionally, interest rates and forward exchange rates have been used to extract expected means of future interest rates, exchange rates...

An independent central bank can manage its balance sheet and its capital so as to commit itself to a depreciation of its currency and an exchange-rate peg. This way, the central bank can implement the optimal escape from a liquidity trap, which involves a commitment to higher future inflation....

A theory of the international trade pattern in risky assets is developed by applying the law of comparative advantage to asset trade. According to this l aw, there is a tendency for a country to import assets that have rela tively high autarky prices. It is examined how autarky prices are aff...

Devaluation expectations for the Swedish krona are estimated for the period 1985 to 1992 using daily data for exchange rates and interest rates. The 90 percent confidence intervals for these estimates obtained by the 'drift-adjustment' method suggested by Giuseppe Bertola and Lars E. O. Svensson...

The problem of time inconsistency arises from two different sources. First, as shown by Guillermo A. Calvo (1978), the re is an incentive for each government to engage in an initial unanti cipated inflation. Second, as discussed by Robert E. Lucas and Nancy L. Stokey (1983), there is an...