We use Bayesian time-varying parameters VARs with stochastic volatility to investigate changes in the marginal predictive content of the yield spread for output growth in the United States and the United Kingdom, since the Gold Standard era, and in the Eurozone, Canada, and Australia over the post-WWII period. Overall, our evidence does not provide much support for either of the two dominant ex...

Article history: Received 8 August 2012 Received in revised form 18 June 2014 Accepted 1 July 2014 Available online 9 July 2014 This paper examines how stock market liquidity and commonality in liquidity are impacted by real-time output gap and inflation, as these macroeconomic variables have been shown to be the main drivers of monetary policy according to the Taylor rule. We show that an incr...

In this paper we study dollarization as a commitment device that the Central Bank could use to avoid getting involved in an undesirable banking-sector bailout. We show how a political process could induce an equilibrium outcome that differs from the one that a benevolent Central Bank would want to implement. Dollarization then could be used to restore the economy to the benevolent outcome. In s...

Progressive labor income taxation in an otherwise standard NK model: (i) introduces a trade-o¤ between output and in‡ation stabilization; (ii) enlarges the determinacy region in the parameter space, substantially altering the so-called Taylor principle; (iii) has non-linear dynamic e¤ects and changes the responses of the economy to a technology and to a government spending shock; (iv) sensibly ...

We examine empirically whether asset prices and exchange rates may be admitted into a standard interest rate rule, using data for the United States, the United Kingdom, and Japan since 1979. Asset prices and exchange rates can be employed as information variables for a standard “Taylor-type” rule or as arguments in an augmented interest rate rule. Our empirical evidence, based on measures of th...

Disinflationary episodes are a valuable source of information for economic agents trying to learn about the economy. This paper is especially interested in how a policymaker can themselves learn by disinflating. The approach differs from the existing literature, which typically focuses on the learning of private agents during a disinflation. We build a model where both the policymaker and priva...

This paper proves a certainty equivalence result for optimal policy under commitment with symmetric partial information about the state of the economy in a model with forwardlooking variables. This result is used in our previous paper [9], which synthesizes what is known about the case of symmetric partial information, and derives useful general formulas for computation of the optimal policy re...

This paper estimates a simple structural model of monetary policy in the UK for 1963-2000, focusing on the policy of inflation targeting introduced in 1992. Our main findings are: i) the adoption of inflation targets led to significant changes in monetary policy giving greater weight to inflation; (ii) monetary policy post-1992 is asymmetric as policy makers respond more to upward deviation of ...

Insurance Policies for Monetary Policy in the Euro Area* In this paper, we examine the cost of insurance against model uncertainty for the euro area considering four alternative reference models, all of which are used for policy analysis at the ECB. We find that maximal insurance across this model range in terms of a Minimax policy comes at moderate costs in terms of lower expected performance....

Since Keynes no economist would deny that expectations under uncertain conditions matter for the conduct of monetary policy, but still opinions about their formation are diverse. We build a hybrid New Keynesian Framework to analyze the in‡uence of model uncertainty on optimal interest rates under di¤erent degrees of rational forward-looking behavior, using recently developed robust control tech...