Evidence about developing countries’ commercial banks’ liquidity preference suggests the following about their loan markets: (i) the loan interest rate is a minimum mark-up rate; (ii) the loan market is characterized by oligopoly power; and (iii) indirect monetary policy, a cornerstone of...

This study shows that strong interest rate expectations can have a massive short-term impact on counterparties' bidding behavior if certain conditions for monetary policy operations are present. This increases the probability of an undesirable reaction of potentially more volatile short-term...

The marked increase in the price of crude oil has also affected the prices of motor fuels, heating oil and other forms of energy. The extent and speed of these price reactions have varied widely in EU countries, and the accompanying inflationary effects have differed accordingly. For monetary...

We show that the credibility gain from permanently committing to a fixed exchange rate by joining the European Monetary Union can outweigh the loss from giving up independent monetary policy if the domestic monetary authority does not enjoy full credibility. Using a DSGE model, this paper shows...

This paper analyses the role of a costly financial system in the transmission of monetary policy. The new-keynesian model for a small open economy is extended with a simple financial system based in Hamann and Oviedo (2006). The presence of the financial intermediation naturally allows the...

We develop a simple model of an economy in which domestic agents borrow and lend from each other in either home or foreign currency. Nominal wage rigidity implies that portfolios are chosen to offset the real variability of labor income. Portfolio choices, in turn, affect the potency of monetary...

Inflation targeting is a statement about the objective of central bank policy and not about operating procedures. Its success depends not only on the actions of the central bank, but requires a broad consensus concerning the proper role of monetary policy in the economy. It also requires the...

The purpose of the paper is to discuss how monetary policy decisions made by the board or monetary policy committee of a central bank can be implemented. It distinguishes between the polar extremes of direct and indirect methods of implementation, and explains why indirect methods are generally...

In many countries two decision-making institutions, the government and the central bank, manage fiscal and monetary policy separately. Such decentralization can lead to a change in the optimal inflation-output trade-off. In fact lack of cooperation can result in a change in the position of the...

The development of the seven main OECD economies during the 1970s and 1980s is discussed. Subsequently, wage equations of the error-correction type for the seven largest OECD economies are estimated. The hypothesis of real wage rigidity cannot be rejected for the French, German, Italian and...