In this paper we assess whether forward guidance for monetary policy regarding the future path of interest rates is desirable. We distinguish between two cases where forward guidance for monetary policy may be helpful. First, forward guidance may reveal private information of the central bank....

In this paper, we argue for a regulatory framework under which a bank’s required level of equity capital depends on the equity capital of its peers. Such bankingon- the-average rules are transparent and could also be combined with the current regulatory framework. In addition, we argue that...

We examine the provision of public projects under separate tax and subsidy rules. We find that tax rules separated from project cum subsidy decisions exhibit several advantages when incentive problems of the agenda-setter are taken into account. In particular, tax rules may prevent the proposal...

We propose a signaling model in which the central bank and firms receive information on cost-push shocks independently from each other. If the firms’ signals are rather unlikely to be informative, central banks should remain silent about their own private signals. If, however, firms are...

We introduce the notion of verifiable information into a model of sequential debate among experts who are motivated by career concerns. We show that self-censorship may hamper the efficiency of information aggregation, as experts withhold evidence contradicting the conventional wisdom. In this...

We introduce a new type of incentive contract for central bankers: inflation forecast contracts, which make central bankers’ remunerations contingent on the precision of their inflation forecasts. We show that such contracts enable central bankers to influence inflation expectations more...

What is the optimal size of expert committees? To address this question, I present a model of a committee of experts with career concerns. Each expert may observe an argument about the state of the world and is unsure about the argument s soundness. Experts may remain silent or compete for the...

In this paper we study the determinants of citizens' trust in the European Central Bank during the start-up phase from 1999-2004. Using a country panel based on the Eurobarometer survey, we find that higher inflation rates reduce trust. Thus people appear to evaluate the performance of the ECB...

We examine "Forward Guidance Contracts", which make central bankers' utility contingent on the precision of interest-rate forecasts. We integrate those contracts into the New Keynesian Framework and study how they can be used to overcome a liquidity trap. We establish the properties of simple...

We analyze different committee designs in a model with the endogenous participation of experts who have private information about their own abilities. Each committee design involves a test of abilities whose accuracy influences experts’ decisions to participate. We derive the following...