This paper evaluates the performance of two alternative policy rules, a forward-looking rule and a spontaneous adjustment rule, under alternative inflation targets, in terms of output losses in a macroeconomic model, using European Union data. The simulations suggest that forward-looking rules...

This paper examines the implications of central bank independence for equilibrium macroeconomic performance. The focus is on institutional arrangements governing financial relationships between central banks and ministries of finance, in the presence of competing objectives and constraints...

Globalization operates not only by reducing domestic pressures on inflation but also by reducing the scope of domestic authorities to influence the pace of inflation. First, as markets are integrated, the common, cross-border sources of inflation increase, reducing the extent of...

This paper provides some empirical estimates on how tightly is it feasible to control inflation in a very small open economy such as Iceland. Estimated macroeconomic models of Canada, Iceland, New Zealand, the United Kingdom, and the United States are used to derive efficient monetary policy...

This paper examines the role of corruption in the design of monetary policies for developing countries in a framework of fiscal and monetary interaction and obtains several interesting results. First, pegged exchange rates, currency boards, or dollarization, while often prescribed as a solution...

Over the past decade, inflation has become less responsive to domestic demand pressures in many industrial countries. This development has been attributed, in part, to globalization forces. A small macroeconomic model, estimated on UK data using Bayesian estimation, is used to analyze the...

Identifying determinants of the output-inflation tradeoff has long been a key issue in business cycle research. We provide evidence that in countries with greater restrictions on capital mobility, a given reduction in the inflation rate is associated with a smaller loss in output. This result is...

This work employs a dynamic general equilibrium model to evaluate the causes and implications of bank insolvencies. The model is applied to stylized data from several South Asian countries. It derives conclusions about policy instruments designed to alleviate the impact of insolvencies. Firms...

This paper examines the household demand for narrow money in Poland during the 1980s. At that time, there were shortages, but informal trade in both goods and foreign exchange was common, and holdings of foreign currency were substantial. Household money demand in this environment is first...

Introducing habit formation into an open economy macroeconomic model with price stickiness, we examine the characteristics of an optimal monetary policy. We find that, first, the optimal policy rule entails interest rate smoothing and responds to the lagged values of the foreign interest rate...