The key issue in the debate, in my opinion, is that, in practice, much of interest rate setting is not driven by looking at inflation and growth forecasts at all horizons, but is based on rules of thumb. In particular, inflation-targeting is usually based on inflation forecasts 1-3 years out, often with a focus on a fixed horizon such as two-years. This can have the effect that asset price misa...

Previous work in monetary policy futures markets under a single policy goal have shown this approach to be effective at eliminating the circularity problem inherent with private-sector targeting strategies. We extend this monetary policy setting framework to a typical multiple goal policy objective: inflation and output stabilization. We also demonstrate how the prices in policy futures markets...

There is a significant amount of empirical evidence to suggest that the yield curve is useful for forecasting inflation, recessions, and possibly even the growth rate of real output. This essay considers the theoretical reasons why the yield curve may have these predictive properties. It is found that the essential reason why the yield curve predicts inflation and recessions is that it, through...

Macroeconomic models are usually developed in a large framework that comprises hundreds of equations. Some pitfalls, however, are inevitable such as a partial failure of forecasts and some theoretical shortcomings of a large macroeconomic model (Lawson 1992 and Wallis 1989). In the early 1990s, small scale macroeconomic model (SSMM) emerged as an alternative tool for comparing the results obtai...

Artmoney is a community currency based on the production and exchange of original art. Critical of the cold and objective nature of conventional transactions, the Danish artist Lars Kraemmer first devised artmoney as a means to a more humanised and expressive type of monetary exchange, intending to bring people together in affective, rather than impersonal, forms of trade. Artmoney provides a m...

This paper documents some new empirical results about the monetary policy and long-term interest rates in the United States. It shows that changes in the monetary policy stance are more predictable to the bond market in the 1990s than in the 1970s. This shift in the predictability of the monetary policy actions affects the policy’s impact on long-term interest rates as well as the forecasting p...

This paper considers a search theoretic model of money in the tradition of Lagos and Wright (2005) where sellers can choose to produce in the formal or informal market. There is continuum of types of producers that differ in their managerial ability, as in Lucas span of control model. Producers in the formal market can make deposits and receive intererst payments, which makes credit possible fo...

This paper examines both the in-sample and out-of-sample performance of three monetary fundamental models of exchange rates and compares their out-of-sample performance to that of a simple Random Walk model. Using a data-set consisting of five currencies at monthly frequency over the period January 1980 to December 2009 and a battery of newly developed performance measures, the paper shows that...