This paper studies the interactions of fiscal and monetary policies in the presence of fiscal spillovers within a monetary union. When capital markets are integrated, the fiscal policy of any member country will influence equilibrium wages and interest rates across the whole union. Thus there are fiscal spillovers within a federation. Within a general class of monetary policy rules, there does ...

A burgeoning part of the monetary policy design literature posits that optimal monetary policy is the solution to a constrained optimization problem where the monetary authority has the discretion to minimize a social welfare function, taking the economy and other policies as given. In their paper “Is Optimal Monetary Policy Always Optimal?” Troy Davig and Refet Gurkaynak (henceforth, DG) argue...

Makoto Nakajima is a senior economist at the Federal Reserve Bank of Philadelphia. The views expressed in this article are not necessarily those of the Federal Reserve. The Federal Reserve conducts monetary policy in order to achieve maximum employment, stable prices, and moderate long-term interest rates. Monetary policy currently implemented by the Federal Reserve and other major central bank...

We examine the effects of unconventional and conventional monetary policy announcements on the value of the dollar using high-frequency intraday data. Identifying monetary policy surprises from changes in interest rate futures prices in narrow windows around policy announcements, we find that surprise easings in monetary policy since the crisis began have had significant effects on the value of...

Those of us who take an essentially Keynesian view in macroeconomics are often accused, somewhat unjustly, I believe, of minimizing the importance of monetary forces. That contention was probably true 20 years ago for a variety of historical and institutional reasons. But much water has passed over the dam since that time, and I believe it would now be difficult to find an example of the popula...

In recent years a growing consensus has emerged for price stability as the overriding, long-run goal of monetary policy. However, despite this consensus, the following question still remains: how should monetary policy be conducted to achieve the price stability goal? To shed light on this question, this paper examines the experience with different monetary policy regimes currently in use in a ...

Motivated by the difficulties of successfully operating a discretionary monetary policy, researchers and policymakers have become increasingly interested in the stabilization properties of a credible precommitment or rule on monetary policy. The theoretical and empirical effects of various monetary rules on real sector variables, such as employment and GNP, have been extensively studied [e.g., ...

Changes in monetary policy are typically implemented gradually, an empirical observation known as interest-rate smoothing. This finding is a puzzle for most monetary models because they predict an immediate response of monetary policy to macroeconomic developments. We propose an explanation of optimal interest-rate smoothing by applying the recent lesson from the related literature on the monet...

This paper studies the effects of monetary policy rules in a fiscal federation, such as the European Union. The focus of the analysis is the interaction between the fiscal policy of member countries (regions) and the monetary authority. Each of the countries structures its fiscal policy (spending and taxes) with the interests of its citizens in mind. Ricardian equivalence does not hold due to t...