STABILIZATION POLICY AS BIFURCATION SELECTION: WOULD STABILIZATION POLICY WORK IF THE ECONOMY REALLY WERE UNSTABLE?

Optimal Monetary Stabilization Policy∗

Monetary Policy and Real Stabilization

During the past two decades, maintenance of low inflation, “price stability,” has become the principal focus of central banks around the world. At the same time, the view has emerged that monetary policy is better suited than fiscal policy for short-run stabilization purposes. This paper examines to what extent monetary policy can be directed at both “monetary stabilization,” stabilizing inflat...

Modern Approaches to Stabilization Policy

It is a great honour to be asked to give the Doug Purvis Memorial Address at this year’s annual meeting of the Canadian Economics Association. As an undergraduate at McGill University in the late 1970s, I had the privilege of studying with a number of distinguished scholars, one of whom, Jack Weldon, had a particularly strong influence on me. Of the many lessons I learned from him, two are part...

The Fraud of Macroeconomic Stabilization Policy

The details of the future will remain forever veiled to us. But give a gypsy seer a Ph.D. in economics and arm her with statistics and mathematical models, and people suddenly start taking her seriously. She will be invited to testify before Congress and held up by State TV as an expert in business forecasting. But from an analytical point of view, what she does is no different from what she di...

Stabilization Policy and the Costs of Dollarization

This paper compares the welfare costs of business cycles in a dollarized economy to those arising in economies with different monetary arrangements. The alternative monetary policy regimes studied belong to three broad families: devaluation rate rules, inflation targeting, and money growth rate rules. The analysis is conducted within an optimizing model of a small open economy with sticky price...