Continuos credibility effects are incorporated into a simple model of optimal monetary policy. The resulting model provides explanations for a number of "folk theorems" about credibility in monetary policy. A central bank with low initial credibility pursues a more restrictive policy than a...

Empirical evidence on the cyclical behavior of technology shocks, or the relative importance of technology shocks versus other structural shocks as sources of fluctuations, hinges crucially on the identification of technological changes. In this paper, we study different measures of technology...

When the interbank market risk premium soared during the finnancial crisis, it created a wedge between interest rates actually paid by private agents and the rapidly falling policy rates. Many central banks attempted to improve the situation by supplying liquidity to the domestic interbank...

When the interbank market risk premium soared during the financial crisis, it created a wedge between interest rates actually paid by private agents and the rapidly falling policy rates. Many central banks attempted to improve the situation by supplying liquidity to the domestic interbank...

In an attempt to move beyond the purchasing power parity hypothesis, this paper studies two issues. First, the causes of movements of real exchange rates are investigated. In contrast to the typical result, supply shocks are found to dominate the long-run variance decompositions for all...

Previous studies of the sources of real exchange rate fluctuations have concluded that real demand shocks account for the bulk of the movements in real exchange rates. In this paper, bilateral real exchange rates between the US, the UK, Germany and Japan are investigated using a statistical...

If floating exchange rates stabilize shocks rather than create shocks, a country that joins a monetary union or fixes its exchange rate looses a stabilizing mechanism. We use a first difference structural VAR on trade weighted macroeconomic data to study the role of floating exchange rates for...