This paper provides a theoretical framework for understanding how monetary policy can be used to control expectations of inflation. We study a simple production economy with a cash-in-advance constraint in which monetary-fiscal policy is Ricardian. Agents’ expectations are modeled as probability distributions on a finite set of possible inflation rates. The monetary authority announces a public...

Using a rich data set on government spending forecasts, we estimate the effects of unexpected government spending both when the nominal interest rate is near zero lower bound (ZLB) and outside of ZLB period in Japan. The output multiplier is 1.5 on impact in the ZLB period while it is 0.7 outside of the ZLB period. We argue that this result is not driven by the amount of slack in the economy. W...

1.0 Introduction With the achievement of low and relatively stable rates of inflation in many industrialised countries, research has been focused on monetary policy implementation strategies, as summarised by policy rules, that minimise the social loss associated with maintaining these hard-earned gains. This work has generally followed two approaches. The first approach, such as that followed ...

T his empirical analysis endeavors to trace out the causal nexus between core inflation and economic growth from the perspective of twenty worlds’ leading economy with the help of the nonlinear Granger causality approach by using time series data from 1981 to 2016. Based on nonlinear Granger causality results, it has been found that there is unidirectional casualty running from core ...

the subject of monetary policy orientation and tailoring a framework within which the credibility and desirability of the policies and the policy makers is enhanced, while the most important goal of policies, i.e reaching to and preserving a low and stable inflation rate is achieved, has recently been a controversial issue for a large number of economists. in fact the necessity arised since the...

This paper studies the long run welfare costs of inflation in a micro-founded model with trading frictions and costly liquidity management. Agents face uninsurable idiosyncratic uncertainty regarding trading opportunities in a decentralized goods market and must pay a fixed cost to re-balance their liquidity holdings in a centralized liquidity market. By endogenizing the participation decision ...

With present and future observations becoming of higher and higher quality, it is timely and necessary to investigate the most significant theoretical uncertainties in the predictions of inflation. We show that our ignorance of the entire history of the Universe, including the physics of reheating after inflation, translates to considerable errors in observationally relevant parameters. Using t...

We estimate a no-arbitrage term structure model of U.S. Treasury yields and corporate bond spreads with both economic factors and latent factors as drivers of term structure dynamics. We consider two sets of economic factors: macro factors consisting of inflation and real activity, and financial market factors consisting of funding liquidity and market volatility. We show that financial market ...