Recent models of monetary policy have analysed the desirability of different optimal and ad hoc interest-rate rules under the restrictive assumption that forecasts of the private sector and central bank are homogeneous. In this paper, we study from a learning perspective the implications of...

Recent models of monetary policy have analyzed the desirability of different optimal and ad hoc interest rules under the restrictive assumption that forecasts of the private sector and the central bank are homogenous. In this paper, we study the implications of heterogeneity in forecasts of the...

We review the recent work on interest rate setting, which emphasizes the desirability of designing policy to ensure stability under private agent learning. Appropriately designed expectations based rules can yield optimal rational expectations equilibria that are both determinate and stable...

We investigate the effectiveness of an aggressive anti-inflation monetary policy on the ability of agents to achieve rational expectations equilibrium (REE) forecasts of inflation. An aggressive anti-inflation policy includes a willingness to respond more forcefully to deviations from an...

This paper investigates the effect of an aggressive price stabilizing monetary policy on the ability of agents to reach a rational expectations equilibrium (REE) for inflation and output. We provide a more robust policy implication than the one suggested by Bullard and Mitra (2002a,b). Using an...

​We examine global dynamics under infinite-horizon learning in New Keynesian models where monetary policy practices either price-level or nominal GDP targeting and compare these regimes to inflation targeting. These interest-rate rules are subject to the zero lower bound. Robustness of the...

We examine "Forward Guidance Contracts", which make central bankers' utility contingent on the precision of interest-rate forecasts for some time. Such Forward Guidance Contracts are a exible commitment device and can improve economic performance when the economy is stuck in a liquidity trap....

This paper shows that the optimal monetary policies recommended by New Keynesian models still imply a large amount of inflation risk. We calculate the term structure of inflation uncertainty in New Keynesian models when the monetary authority adopts the optimal policy. When the monetary policy...

We describe the joint dynamics of bond yields, monetary policy and macroeconomic variables within a no-arbitrage affine term structure framework while explicitly modeling the zero lower bound (ZLB) using the shadow rate methodology. We include data on the unemployment gap and inflation to build...

Inflation targeting is implemented in different ways - most often by adopting point targets, by having tolerance bands around a point target, or by specifying target ranges. Using data for 20 economies, this paper tests whether the various target types affect the anchoring of inflation...