This paper incorporates heterogeneous agents into a NNS model with nominal inertia. Heterogeneous households are introduced into NNS models to try and reconcile the movements in interest rates, consumption and inflation. The key findings here are that heterogeneity and wage inertia are needed to...

Liquidity problems lie at the heart of crises on financial markets as demonstrated in this paper by detailed descriptions of the stock market crash in 1987, the LTCM-crisis in 1998 and the financial market consequences of 11 September 2001. The events also demonstrate that modern central banks,...

The perceptions of a central bank’s inflation aversion may reflect institutional structure or, more dynamically, the history of its policy decisions. In this paper, we present a novel empirical framework that uses high frequency data to test for persistent variation in market perceptions of...

There has been mounting evidence that the inflation process has been changing. Inflation is now much lower and much more stable around the globe. And its sensitivity to measures of economic slack and increases in input costs appears to have declined. Probably the most widely supported...

The effectiveness of a central bank's monetary policy depends on the incentives of its head and board members to pursue an efficient policy in the citizens interest. Today, however, these incentives are weakened by three kinds of regulations. First, in almost all countries, only nationals may be...

We study the role of bank capital and liquidity in the transmission of monetary policy in Switzerland. Using a large set of data, we test the assumptions that the effect of a change in the monetary policy stance on a bank's lending activity depends (i) on its capital (the bank capital channel)...

After the switch to a floating exchange rate in 1973, the Swiss National Bank at first adopted annual monetary targets and in the 1990s shifted to a medium-term targeting strategy. In this paper I review the SNB’s internal policy analysis, an aspect of Swiss monetary targeting that has...

We consider the nature of optimal cyclical monetary policy in three different stochastic models with various shocks. The first is a pure liquidity effect model, the second is a cost of changing prices model, and the third is an optimal seignorage model. In each case we solve for the optimal...

We analyze the optimal design of monetary rules. We suppose there is an agreed upon social welfare function that depends on the randomly fluctuating state of the economy and that the monetary authority has private information about that state. We suppose the government can constrain the policies...

Are optimal monetary and fiscal policies time consistent in a monetary economy? Yes, but if and only if under commitment the Friedman rule of setting nominal interest rates to zero is optimal. This result is of applied interest because the Friedman rule is optimal for the standard preferences...