This article uses a DSGE framework to evaluate the role of monetary policy in determining the likelihood of encountering the zero lower bound. We find that the probability of experiencing episodes of being at zero lower bound depends almost exclusively on the monetary policy rule. A policy rule,...

We use a dynamic stochastic general equilibrium model to address two questions about U.S. monetary policy: 1) Can monetary policy elevate output when it is below potential? and 2) Is the zero lower bound a trap? The model's answer to the first question is yes it can, but the effect is only...

This paper examines the impact of a permanent shock to the productivity growth rate in a New Keynesian model when the central bank does not immediately adjust its policy rule to that shock. Our results show that inflation and productivity growth are negatively correlated at business cycle...

There has been a resurgence of interest in dynamic factor models for use by policy advisors. Dynamic factor methods can be used to incorporate a wide range of economic information when forecasting or measuring economic shocks. This article introduces the dynamic factor models (DFMs) and uses a...

This paper shows that the optimal monetary policies recommended by New Keynesian models still imply a large amount of inflation risk. We calculate the term structure of inflation uncertainty in New Keynesian models when the monetary authority adopts the optimal policy. When the monetary policy...

Empirical macroeconomics is plagued by small sample size and large idiosyncratic variation. This problem is especially severe in the case of the transition economies. We utilize a mixed-estimation method incorporating prior information from OECD country data to estimate the parameters of a...