The discussion about country-specific influence on the interest rate decisions of the European Central Bank does not cease. To investigate the possibility of regional influence on the determination of the policy rate, we estimate Taylor-type reaction functions for the period from 1999 to 2005 and include country-specific variables of the euro zone member states. We do not find convincing eviden...

This paper extends Woodford’s (2010) approach to the robustly monetary policy to a general linear quadratic framework. We provide algorithms to solve for a time-invariant linear robustly optimal policy from a timeless perspective and for a time-invariant linear Markov perfect equilibrium under discretion. We apply our methods to a New Keynesian model of monetary policy with persistent cost-push...

We analyze the impact of news (information shocks) in economies where liquidity plays a role. While we also consider news about real factors, like productivity, one motivation is that central bank announcements evidently affect markets, as taken for granted by advocates of forward guidance policy. The dynamic effects can be complicated, with information about monetary policy or real factors aff...

This paper examines equilibrium determination under different monetary policy regimes when the government might default on its debt. We apply a cash-inadvance model where the government does not have access to non-distortionary taxation and does not account for initial outstanding debt when it sets the income tax rate. Solvency is then not guaranteed and sovereign default can affect the return ...

Can central banks defuse rising stability risks in financial booms by leaning against the wind with higher interest rates? This paper studies state-dependent effects of monetary policy on crisis risk. Based near-universe advanced economy cycles since nineteenth century, we show that discretionary policies during credit and asset price are more likely to trigger crises than prevent them. (JEL E4...

Existing estimates of the Federal Reserve’s implicit inflation target typically rely on the assumption that it is constant for the duration of the period of analysis. This paper relaxes this assumption and estimates the implicit inflation target using a time-varying parameter model and the Kalman filter. In applying this method to the Volcker–Greenspan period, it finds significant time variatio...

We compare macroeconomic models of sticky-prices (Calvo and Costsof-adjustment) with flexible price models in terms of optimal seigniorage. This sheds light on the importance of relative price distortions. Sticky-price models with no price dispersion terms have unattractive implications, we argue, when it comes to the derivation of optimal policies. We provide examples where they may imply very...

The identification of reduced-form VAR model had been the subject of numerous debates in the literature. Different sets of identifying assumptions can lead to very different conclusions in the policy debate. This paper proposes a theoretical consistent identification strategy using restrictions implied by a DSGE model. Monte Carlo simulations suggest the proposed identification strategy is succ...

A Search Model of Unemployment and Inflation In this paper, I introduce money in the standard labor-matching model (Mortensen and Pissarides 1999, Pissarides 2000). A double coincidence problem makes Fiat Money necessary as a medium of exchange. In the long-run, a rise in the rate of money growth leads to higher inflation and higher unemployment, so the long-run Phillips curve is not vertical. ...

We show that if policymakers compute the optimal unconstrained interest-rate rule within a Taylor-type class, they may be led to rules that generate indeterminacy and/or instability under learning. This problem is compounded by uncertainty about structural parameters since an optimal rule that is determinate and stable under learning for one calibration may be indeterminate or unstable under le...