Forecast targeting,” forward-looking monetary policy that uses central-bank judgment to construct optimal policy projections of the target variables and the instrument rate, may perform substantially better than monetary policy that disregards judgment and follows a given instrument rule. This is demonstrated in a few examples for two empirical models of the U.S. economy, one forward looking an...

This paper is concerned with the saddle-path stability of monetary growth rules in a two-country two-sector dynamic stochastic general equilibrium model. Alongside standard features of emerging economies, such as a combination of producer and local currency pricing for exports, fiscal dominance and oil exports, this model also incorporates informal labour and production sectors and examines how...

In the United States, eradication of persistent federal deficits has won broad bipartisan support. At the same time, political pressures have mounted to strengthen the Federal Reserve's explicit concern with price stability. Proposals under consideration would require a much narrower focus on the part of Fed policymakers, and could be interpreted as targeting the price level rather than a negli...

Recent experience suggests that the operation of monetary policy in emerging market economies is severely limited by the presence of financial constraints. This is seen in the tendency to follow contractionary monetary policy during crises, and the observation that these countries pursue much more stable exchange rates than do high income advanced economies, despite having a more volatile exter...

This paper studies the role of stabilization policy in a model where …rm entry responds to shocks and uncertainty. We evaluate stabilization policy in the context of a simple analytically solvable sticky price model, where …rms have to prepay a …xed cost of entry. The presence of endogenous entry can alter the dynamic response to shocks, leading to greater persistence in the e¤ects of monetary ...