In this paper the optimal choice of a monetary target is investigated for a small open economy that is subject to foreign monetary policy shocks. In contrast to large parts of the literature, pegging the exchange rate is never the best policy choice for the small open economy in our model. Instead, monetary targeting and, depending on the parameter combination, producer price index targeting co...

In this paper we re–examine banks’ lending behavior taking into account changes in the stance of monetary policy in conjunction with changes in financial sector uncertainty. Using a very large data set covering all banks in the US between 1979–2000, we show that financial sector uncertainty plays an important role in banks’ lending decisions: for a given size classification, less liquid banks (...

This paper proposes a simple prototype model that describes the complex dynamics of a sophisticated monetary economy. The interaction between the current and intertemporal financial constraints on economic units brings about irregular fluctuations at both micro and macro levels. We use qualitative dynamic analysis and numerical simulations to investigate the interaction between financial fragil...

In this paper, we evaluate the effects of monetary policy on inflation and unemployment under different institutional arrangements in the labor market. We show that the effects of monetary policy on the real economy depend critically on the wage formation regime, and on the ways in which the restrictiveness of policy interacts with product price competition, wage setting centralization and the ...

This paper argues that the existence of bank networks is important for banks ́ reaction to monetary policy. For the example of Germany, the VAR analysis shows that following a monetary contraction small banks access the interbank market indirectly through the head institutions of their respective network organisations. The interbank flows within these networks allow small banks to access funds t...

This paper estimates a time-varying AR-GARCH model of inflation producing measures of inflation uncertainty for the euro area, and investigates the linkages between them in a VAR framework, also allowing for the possible impact of the policy regime change associated with the start of EMU in 1999. The main findings are as follows. Steady-state inflation and inflation uncertainty have declined st...

Bank of England, one the leading examples modern banking, has been established at end 17th century. Economic and social turmoils wars that broke up in first half 19th century have led to a serious debate between Currency School Banking regarding primary function BoE. The Charter Act dated 1844 enacted eliminate ongoing instabilities British economy. act was suspended 1847, 1857, 1866 because de...

We study the design of optimal monetary policy under uncertainty in a dynamic stochastic general equilibrium models. We use a Markov jump-linear-quadratic (MJLQ) approach to study policy design, approximating the uncertainty by different discrete modes in a Markov chain, and by taking mode-dependent linear-quadratic approximations of the underlying model. This allows us to apply a powerful meth...

New Neoclassical Synthesis models equate the instrument of monetary policy to the implied CCAPM rate arising from a standard model with power utility. This paper identifies monetary policy shocks using a multi country dataset and examines the movement of money market and implied CCAPM rates. We find that an increase in the nominal interest rate leads to a fall in the implied CCAPM rate. Incorpo...

We explore two popular approaches to empirical analysis of monetary policy: the New Keynesian and the identified vector autoregression approaches. Stylized models of private behavior coupled with simple rules describing policy behavior characterize New Keynesian work. Vector autoregressions consist of minimally identified dynamic descriptions of private behavior coupled with a detailed rule for...