Recently, the Bank of Japan outlined a “two perspectives” approach to the conduct of monetary policy that focuses on risks to price stability over different time horizons. Interpreting this as pertaining to different frequency bands, we use band spectrum regression to study the determination...

It is argued that standard impulse response analysis based on vector autoregressive models has a number of shortcomings. Although the impulse responses are estimated quantities, measures for sampling variability such as confidence intervals are often not provided. If confidence intervals are...

The role of bank capital as a propagation channel of shocks is strongly pronounced in recent macroeconomic models. In this paper, we show how the evolution of bank capital depends on the share of non-state-contingent assets in banks' balance sheets and present the consequences for macroeconomic...

We estimate forward-looking interest rate reaction functions in the spirit of Taylor (1993) for four major central banks augmented by implicit volatilities of stock market indices to proxy financial market stress. Our results suggest that the Bank of England, the Federal Reserve Bank and the...

In this paper we set up a New-Keynesian model with a heterogenous banking sector to analyze liquidity problems on the interbank market. The presence of an interbank market is essential to consider a situation where an increased liquidity supply by the central bank is only partially passed on to...

How might central bank communication of its internal forecasts assist the conduct of monetary policy? The literature has shown that heterogeneous expectations may have destabilizing effects on aggregate dynamics. This paper analyzes through adaptive learning the policy implications of central...

This paper examines the reaction of the Romanian financial markets to the changes of monetary policies in the US during 2013. Using daily data for Bucharest Stock Exchange main equity index, EURRON exchange rate, 5 and 2 year government bond price index and 5 year government CDS (USD) price, we...

Recent studies document the deteriorating performance of forecasting models during the Great Moderation, which conversely implies that forecastability was higher in the preceding era when the economy was unexpectedly volatile. We explain this phenomenon in the context of equilibrium...