The literature on monetary policy games establishes that policy makers' attempts to boost employment above the 'natural' rate are futile and result in an inflationary bias when wage setters have rational expectations and the policy maker cannot precommit. This implies that a variation of the...

While monetary targeting has become increasingly rare, many central banks attach weight to money growth in setting interest rates. This raises the issue of how money can be combined with other variables, in particular the output gap, when analysing inflation. The Swiss National Bank emphasises...

This paper studies the role of unemployment in sterling’s inter-war experience. According to most narrative accounts, the proximate cause of the 1931 sterling crisis was a high and rising unemployment rate that placed pressure on British governments to pursue reflationary policies. We present...

This paper presents a model in which price setting firms optimally decide what to pay attention to, subject to a constraint on information flow. When idiosyncratic conditions are more variable or more important than aggregate conditions, firms pay more attention to idiosyncratic conditions than...

In a Common Currency Area (CCA) the Common Central Bank sets a uniform rate of inflation across countries, taking into account the area’s economic conditions. Supposing that countries in recession favor a more expansionary policy than countries in expansion, a conflict of interest between...

In a country with high probability of default, higher interest rates may render the currency less attractive if sovereign default is costly. This paper develops that intuition in a simple model and estimates the effect of changes in interest rates on the exchange rate in Brazil using data from...

Bank failures during banking crises, in theory, can result either from unwarranted depositor withdrawals during events characterized by contagion or panic, or as the result of fundamental bank insolvency. Various views of contagion are described and compared to historical evidence from banking...

There is a substantial literature arguing that financial development contributes to economic growth. In this paper, we contribute to this literature by examining the effect of state-level banking regulation on financial development and economic growth in the United States from 1900 to 1940....

Sargent (1999) warns that if policy makers’ views on the unemployment-inflation trade-off are driven by empirical correlations, rather than theory, disinflations (escapes from high to low inflation) may periodically occur but are not bound to last. This Paper asks how different inflation...

In this paper, the role of the financial position of private agents in the transmission of monetary policy (the balance-sheet channel) is explored. To the extent that officila interest rates are able to affect the market value and the income flows of certain categories of financial instruments...