With inflation and policy interest rates at historically low levels, policymakers show great concern about "downside tail risks" due to a zero lower bound on nominal interest rates. Low probability or tail events, such as sustained deflation or recession, are disruptive for the economy and can be difficult to resolve. This paper shows that price-level targeting mitigates downside tail risks res...

The paper identifies monetary economic features of the post-transition Croatian economy, with a view towards using inflation rate targeting to reach European Union (EU) inflation targets as required by EU accession. If focuses on the demand for real money balances, the Fisher equation of interest rates, and the effect of nominal money on output, for Croatia over the 1994-2002 period. The real m...

Faced with real and nominal shocks, what should a benevolent central bank do, fix the money growth rate or target the inflation rate? In this paper, we make a first attempt at studying the optimal choice of monetary policy instruments in a micro-founded model of money. Specifically, we produce an overlapping generations economy in which limited communication and stochastic relocation creates an...

Background: One of the most fundamental objectives of the macroeconomic policies is to realize the relationship between economic growth and inflation. According to some monetary policy advisors, inflation reflects erosion in consumer’s purchasing power. Inflation as an important economic variable, affect the economic growth and its impact on economic growth has been proposed in various theories...

In this paper, stochastic simulations of the Reserve Bank of New Zealand’s new macroeconomic model, FPS, are used to examine the issue of which price index should monetary policy stabilise in a small open economy. Under the class of policy rules considered, targeting a measure of domestic inflation, which does not include the direct effects of exchange rate movements on the price of imported go...

Given the increasing importance of achieving low and stable inflation rate during the last decades, adopting the most suitable practices to implement monetary policies has always been of concern by monetary authorities of different countries. Inflation targeting (IT) regime is the most recent strategy to guide monetary policies that have been introduced following the occurrence of exchange rate...

This paper compares the performances of three alternative nominal anchors, i.e., price inflation, nominal income growth, and money growth in an estimated monetary business cycle model. The representative household’s lifetime utility is used as a natural welfare metric, and the welfare effects of the non-linear dynamics are captured by a quadratic approximate solution method. Strict inflation ta...

In light of the current low-interest-rate environment, we reconsider merits strict money growth targeting (MGT) relative to conventional inflation (IT) and price level (PLT). We evaluate these policies in terms social welfare through lens a New Keynesian model accounting for zero lower bound (ZLB) constraint on nominal interest rate. Although MGT makes monetary policy vulnerable demand shocks, ...

Background: One of the most fundamental objectives of the macroeconomic policies is to realize the relationship between economic growth and inflation. According to some monetary policy advisors, inflation reflects erosion in consumer’s purchasing power. Inflation as an important economic variable, affect the economic growth and its impact on economic growth has been proposed in various theories...