In this study, we perform a quantitative assessment of the role of money as an indicator variable for monetary policy in the euro area. We document the magnitude of revisions to euro area-wide data on output, prices, and money, and find that monetary aggregates have a potentially significant role in providing information about current real output. We then proceed to analyze the information cont...

This paper applies a state-space approach to estimate the implicit inflation target of the South African Reserve Bank (SARB) since the adoption of the Inflation Targeting (IT) framework. The paper‟s findings are two. First, although the official inflation target range is 3–6 percent, in practice, the SARB seems to have aimed for the upper segment of the band (41 2 –6 percent) for most of the p...

Over the past twenty years, macroeconomic performance has improved in industrialized and developing countries alike. In a broad cross-section of countries inflation volatility has fallen markedly while output variability has either fallen or risen only slightly. This increased stability can be attributed to either: 1) more efficient policymaking by the monetary authority, 2) a reduction in the ...

We propose an Economic Stability Index (ESI) incorporating house prices and stock prices as components of the measure of the inflation rate in order to allow the European Central Bank (ECB) to achieve both price and macroeconomic stability. We use an optimisation approach to estimate target weights for different sectoral prices in the broader price index, which depend on sectoral parameters oth...

We show that a purely private monetary system is inherently unstable due to the role of endogenous debt limits in the creation of private money. Because people’s ability to issue notes (personal liabilities that circulate as a medium of exchange) depends on beliefs about the exchange value of their notes in future periods, there exist multiple equilibria. Some of these equilibria have undesirab...

This paper develops a general equilibrium model with the banking system and the reserves market, where the central bank a¤ects the federal funds rate through open market operations. We show that when the coe¢ cient that measures the response of the federal funds rate to the in‡ation rate falls below a threshold value, which is very small, the economy will have two steady states, where the low-e...

The Learning Cost of Interest Rate Reversals* In this Paper, we suggest a new motivation for why central banks appear averse to reversing recent changes in their interest rate. We show, in a standard monetary model with forward-looking expectations, data uncertainty and parameter uncertainty, that there is a learning cost associated with interest rate reversals. A policy that frequently reverse...

This paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis. Aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation. While ‘moderate’ participation rates strengthen the role of monetary policy, lo...

This paper considers the role of monetary policy in mitigating the effects of financial crises. I suppose that the economy occasionally but infrequently experiences crises, where financial variables directly affect the broader real economy. I analyze the formulation of monetary policy under such financial uncertainty, where policymakers recognize the possibility of financial crises, which leads...

This paper investigates the effects of financial institutions issuing contingent capital, a debt security that automatically converts into equity if assets fall below a predetermined threshold. We analyze a tractable form of contingent convertible bonds (“coco”) and provide a closed-form solution for the price. We quantify the reduction in default probability associated with contingent capital ...