The combination of discretionary monetary policy, labor-market distortions and nominal wage rigidity yields an inflation bias as monetary policy tries to exploit nominal wage contracts to address labour-market distortions. Although an inflation target eliminates this inflation bias, it creates a...

Societies often rely on simple rules to restrict the size and behavior of governments. When fiscal and monetary policies are conducted by a discretionary and profligate government, I find that revenue ceilings vastly outperform debt, deficit and monetary rules, both in effectiveness at curbing...

In this paper, we investigate the properties of alternative monetary policy rules using four structural macroeconometric models: the Fuhrer-Moore model, Taylor's Multi-Country Model, the MSR model of Orphanides and Wieland, and the FRB staff model. All four models incorporate the assumptions of...

This paper assesses the implications for optimal discretionary monetary policy if the slope of the Phillips curve changes. The paper first derives a 'switching' Phillips curve from the optimal pricing decision of a monopolistic firm that faces a changing cost of price adjustment. Two states...

The existence of and uncertainty about structural change in the economy are important features facing policymakers. This paper considers the implications for policy design of uncertainty about structural change, modelling the time variation in parameters of forward-looking models as Markov...

When people's policy forecasts are generated by exact replication of the policymaker's decision problem, present and past policy has no effect on expectations of future policy. However, when people's policy forecasts are based on the policymaker's present and past actions, for example through...

We develop a general mandate framework for delegating monetary policy to an instrument-independent, but goal-dependent central bank. The goal of the mandate consists of: (i) a simple quadratic a loss function that penalizes deviations from target macroeconomic variables; (ii) a form of a...

How much discretion should the monetary authority have in setting its policy? This question is analyzed in an economy with an agreed-upon social welfare function that depends on the randomly fluctuating state of the economy. The monetary authority has private information about that state. In the...

Despite a number of helpful changes, including the adoption of an inflation target, the Fed's monetary policy strategy proved insufficiently resilient in recent years. While the Fed eased policy appropriately during the pandemic, it fell behind the curve during the post-pandemic recovery. During...

This paper examines whether monetary indicators are useful in implementing optimal discretionary monetary policy when the policy maker has incomplete information about the environment. We find that money does not contain useful information for the policy maker, if we calibrate the model to the...