We study a simple, microfounded macroeconomic system in which the monetary authority employs a Taylor-type policy rule. We analyze situations in which the self-confirming equilibrium is unique and learnable according to Bullard and Mitra (2002). We explore the prospects for the use of ‘large...

Several papers have documented how the reaction function of the U.S. monetary authority has been passive, and destabilising, before Volcker"s appointment, and active and stabilising since then. In this paper we first compare the two sub-periods in terms of several key business-cycle 'stylised...

Optimal monetary policy studies typically rely on a single structural model and identification of model-specific rules that minimize the unconditional volatilities of inflation and real activity. In our proposed approach, we take a large set of structural models and look for the model-robust...

Optimal monetary policy studies typically rely on a single structural model and identification of model-specific rules that minimize the unconditional volatilities of inflation and real activity. In our proposed approach, we take a large set of structural models and look for the model-robust...

We estimate a forward-looking monetary policy reaction function for the postwar United States economy, before and after Volcker's appointment as Fed Chairman in 1979. Our results point to substantial differences in the estimated rule across periods. In particular, interest rate policy in the...

The remarkable decline in macroeconomic volatility experienced by the U.S. economy since the mid-80s (the so-called Great Moderation) has been accompanied by large changes in the patterns of comovements among output, hours and labor productivity. Those changes are reflected in both conditional...

This paper explores the implications of monetary policy rules in the general equilibrium two-country framework of Obstfeld and Rogo (1995). It is argued that the sign of the correlation of domestic and foreign outputs can be positive after a monetary shock, contrary to the standard result. The...

In this paper we extend an integrated closed-economy macrodynamic model to account for a large open economy in a currency area with fixed nominal exchange rates between the currencies. The major issues are the effectiveness and macrodynamic effects of monetary policy for countries in a pegged or...

We estimate a forward-looking monetary policy reaction function for the US economy, pre- and post-October 1979. Our results point to substantial differences in the estimated rule across periods. In particular, interest rate policy in the Volcker-Greenspan period appears to have been much more...

In a standard overlapping generations model, active monetary policy reinforces mechanisms that lead to equilibrium indeterminacy and to countercyclical behavior of young-age consumption. The policy rule which minimizes inflation volatility can be active or passive, depending on the...