This paper studies banking and financial innovations in a stochasti c general equilibrium model, assuming the existence of two distinct types of goods: cash goods, which can only be purchased by cash, and check goods, which can also be purchased by checks drawn against interest-bearing bank...

Inflation-targeting regimes (like those of New Zealand, Canada, the United Kingdom, and Sweden) are interpreted as having explicit inflation targets and implicit employment targets. Without employment persistence, an 'inflation-target-conservative' central bank eliminates the inflation bias,...

A time-varying stochastic devaluation risk is introduced in a model of exchange rate target zones. The model produces realistic patterns of covariation between exchange rates and interest rate differentials, which previous target zone models have been unable to do. A 'drift adjustment' method to...

"Forecast targeting", forward-looking monetary policy that uses central-bank judgment to construct optimal policy projections of the target variables and the instrument rate, may perform substantially better than monetary policy that disregards judgment and follows a given instrument rule. This...

Expected rates of devaluation for the French franc/Deutsche mark exchange rate during the EMS are estimated using the 'drift adjustment' method. Exchange rates within the band display strong mean reversion. The adjustment term, the expected rate of depreciation within the band, is often of the...

The authors compare estimation of spot and implied forward interest rates from Swedish Treasury bill and government bond yields with two functional forms, the simple Nelson and Siegel (NS) and the complex Longstaff and Schwartz (LS). Monetary policy rather than financial analysis is in focus,...