In this paper, I revisit an old question in the analysis of monetary policy that was first studied by Rogoff (1985) — should central banks pursue objectives that differ systematically from social welfare? I investigate how the answer to this question is affected by the degree of transparency that characterizes monetary policy. When the policy regime is one of discretion and the central bank is ...

In this paper, I revisit an old question …rst studied by Rogo¤ (1984) –should central banks pursue objectives that di¤er systematically from social welfare? I investigate how the answer to this question is affected by the degree of transparency that characterizes monetary policy. When the policy regime is one of discretion and the central bank is opaque, changes in the policy interest rate have...

This paper presents a number of responses to Gordon de Brouwer’s criticisms of my paper on monetary policy in Indonesia. Among other things, it argues that de Brouwer has failed to disentangle the impact of two exogenous disturbances on prices—and relative prices—during the crisis and post-crisis period. These disturbances were capital flight, which resulted in real depreciation of the rupiah, ...

We investigate the econometric properties of the Federal Reserve Greenbook forecasts with an integrated real-time database of U.S. macroeconomic data that more precisely characterizes the information sets available to Fed policy makers in advance of the Open Market Committee meetings. Our data set associates historical vintages of NIPA and labor market data with the exact dates of the Greenbook...

This study investigates the profit efficiency (PROFEFF) of small banks (those under $500 million in total assets) for 1990–96. Assuming that small banks and large banks use the same production technology, we find, consistent with Berger and Mester [J. Bank. Finance 21 (1997) 875], that small banks are more profit efficient than large banks. Small banks in non-metropolitan statistical areas (non...

In this paper we examine the link between stock market uncertainty and monetary policy in the US. There are strong arguments why central banks should account for stock market uncertainty in their strategy. Amongst others, they can maintain the functioning of financial markets and moderate possible economic downswings. To describe the behavior of the Federal Reserve Bank, augmented forward-looki...

This paper evaluates quantitatively the effect of real money balances in a New Keynesian framework. Money in our model facilitates transactions and is introduced through a transactions cost technology. This technology acts like a distortionary consumption tax which varies endogenously with the nominal interest rate. In this setup the resultant Phillips curve becomes a function of the nominal in...

We describe a behavior of a central bank when its measures of current inflation and output are subject to measurement errors, in a framework of optimizing models with nominal price stickiness. In our model, a central bank sets the interest rate equal to its current estimate of the so-called Wicksellian natural rate of interest. This is shown to imply that the interest rate responds to the centr...

The “conservative central banker” has come under attack recently. Explicitly modeling the interaction of a trade union with monetary policy, it has been argued that the standard solution to the inflationary bias in monetary policy might actually be welfare-reducing if the trade union has an exogenous preference against inflation. We reframe this discussion in a standard trade union model. We sh...

We examine optimal and other monetary policies in a linear-quadratic setup with a relatively general form of model uncertainty, so-called Markov jump-linear-quadratic systems extended to include forward-looking variables and unobservable “modes.” The form of model uncertainty our framework encompasses includes: simple i.i.d. model deviations; serially correlated model deviations; estimable regi...