The optimal design of a central bank digital currency (CBDC) is analyzed in an environment where agents sort into cash, CBDC, and deposits according to their preferences over anonymity security; network effects make the convenience payment instrument depend on number its users. A CBDC can be designed with attributes similar cash or deposits, interest bearing: that closely competes depresses cre...

By providing guidance about future economic developments, central banks can a¤ect private sector expectations and decisions. This can improve welfare by reducing the e¤ects of asymmetric information and by leading to smaller forecast errors. But it can also magnify the impact of noise in the central bank’s forecasts. I employ a model of heterogeneous information to compare outcomes under opaque...

This paper assesses the relative effectiveness of central bank independence vs. policy rules for the policy instruments in bringing about good economic performance. It examines historical changes in (1) macroeconomic performance, (2) the adherence to rulesbased monetary policy, and (3) the degree of central bank independence. Macroeconomic performance is defined in terms of both price stability...

This paper investigates monetary policy design when central bank and private sector expectations di¤er. Private agents learn adaptively; the central bank has a possibly misspeci…ed model of the economy. Successful implementation of optimal policy using in‡ation targeting rules requires the central bank to have complete knowledge of private agents’learning behavior. If the central bank mistakenl...

We consider the optimality of various institutional arrangements for agencies that conduct macro-prudential regulation and monetary policy. When a central bank is in charge of price and financial stability, a new time inconsistency problem may arise. Ex-ante, the central bank chooses the socially optimal level of inflation. Ex-post, however, the central bank chooses inflation above the social o...