Allan Meltzer developed his model of the monetary transmission mechanism in research conducted with Karl Brunner. The Brunner-Meltzer model implies that the Federal Reserve would benefit from drawing brighter lines between monetary and fiscal policy actions, eschewing credit market intervention and focusing, instead, on using its control over the monetary base to stabilize the aggregate price l...

This paper argues that the implications of globalization for monetary policy come mainly through two channels: On the one hand, the many structural changes, which are associated with the globalization process, cause an increase in uncertainty surrounding monetary policy. This leads to an increase in uncertainty about how to interpret macroeconomic data/indicators and about the monetary transmis...

Starting in the early 1990s, the New Open Economy Macroeconomics refers to a vast body of literature embracing a new theoretical framework for policy analysis in open economy, with the goal of overcoming the limitations of the Mundell-Fleming model, while preserving the empirical wisdom and policy friendliness of traditional analysis. Building general equilibrium models with imperfect competiti...

We investigate an international monetary business-cycle model in which agents face monetary policy processes that incorporate regime shifts. In any given period agents cannot directly observe the policy regime, but instead form beliefs that are updated via Bayesian learning. As a result, expectation adjustment displays inertia that adds persistence to the e®ects of monetary shocks. Monetary pol...

Abstract: We investigate the derivation of optimal interest rate rules in a simple stochastic framework. The monetary authority chooses to minimise an asymmetric loss function made up of the sum of squared components, where the monetary authority places positive weight on squared negative (positive) deviations of output (inflation) and zero weight on squared positive (negative) deviations. Rece...

This paper studies the implications of certain kinds of uncertainty for monetary policy. It first describes the optimum policy rule in a simple model of the transmission mechanism as in Ball and Svensson. It then examines how this rule ought to be modified when there is uncertainty about the parameters, about the time lags, or about the nature of shocks. The paper also discusses the case of a s...

This paper empirically evaluates the operational performance of the McCallum rule, the Taylor rule and hybrid rules in India over the period 1996–2011 using quarterly data, with a view to analytically informing the conduct of monetary policy. The results show that forward-looking formulations of both rules and their hybrid version setting a nominal output growth objective for monetary policy wi...

The Great Inflation of the 1970s was an international phenomenon. We study whether monetary authorities in the G7 countries were changing their responses to inflation in a similar manner during and following the Great Inflation era. Our results suggest that the common to the G7 countries inflation pattern during the Great Inflation period is associated with a common pattern in the monetary poli...

This paper studies a general equilibrium model that is consistent with recent empirical evidence showing that the U.S. price level and in‡ation are much more responsive to aggregate technology shocks than to monetary policy shocks. Speci…cally, we show that the fact that aggregate technology shocks are more volatile than monetary policy shocks induces …rms to pay more attention to the former th...

This paper investigates whether and how exchange rate movements were taken into account in formulating monetary policy in Australia, Canada, New Zealand and the United Kingdom. We develop and estimate a structural general equilibrium two-sector model with sticky prices and wages, partial indexation on lagged inflation, a combination of both producer currency pricing and local currency pricing f...