This paper develops a Bayesian approach to estimating exchange rate target zone models and rational expectations models in general. It also introduces a simultaneous-equation target zone model that incorporates stochastic realignment risk. Using FF/DM and IL/DM exchange rate data, we ®nd that the signing of the 1987 Basle±Nyborg Agreement reduces both the magnitude and the likelihood of a centr...

In this paper we use the common perspective provided by the neoclassical growth model to evaluate the size of the distortions associated with different monetary and fiscal policies designed to finance a given sequence of government expenditures. We calibrate a neoclassical monetary economy to match important features of the U.S. economy and use it to provide a quantitative assessment of the wel...

The Federal Reserve has implemented policies during the past six years that rely on channels of transmission to the real economy that economic models have assumed to exist but seldom tested or on channels that were simply presumed not to exist. I discuss the board channels of monetary policy transmission that may allow forward guidance and balance sheet policies to affect the economy. The assum...

We study a dynamic equilibrium model in which agents have adaptive expectations and monetary authorities pursue an inflation target. We show how alternative monetary stabilization policies become more effective when fiscal constraints on deficits are implemented, although they are not binding at the equilibrium target. In particular, we show that the inflation target equilibrium can be locally,...

We examine global economic dynamics under learning in a New Keynesian model in which the interest-rate rule is subject to the zero lower bound. Under normal monetary and fiscal policy, the intended steady state is locally but not globally stable. Large pessimistic shocks to expectations can lead to deflationary spirals with falling prices and falling output. To avoid this outcome we recommend a...

This paper reformulates the issue of the international coordination of monetary policy in the framework of an extended game with observable delay, where governments are required to set the timing of their respective actions before proceeding to the actual choice of their monetary policies. This allows to shrink signi...cantly the set of equilibria. JEL Classi...cation: D43, E61, F41, F42

Using a nonlinear structural VAR approach, we estimate the effects of exogenous monetary impulses in the presence of a zero lower bound constraint on nominal interest rates and examine the impact of such a constraint on the effectiveness of counter-cyclical monetary policies. We find that a binding zero bound on nominal interest rates can eliminate more than 50% of the effect of an exogenous mo...

Empirical data shows that current account has the property of mean-reversion and the speed of current account convergence is heterogenous across countries. In order to explore the factors which affect the current account adjustment speed of a small country, this paper builds up a model to study how current account would be affected by factors such as labor supply and monetary policies. We found...