We examine the expectational stability (E—stability) of rational expectations equilibrium in the standard, “New Keynesian” model of the monetary transmission mechanism when monetary policy is optimally derived. We suppose that the monetary authority adds interest rate stabilization to its other two objectives of inflation and output stabilization, and we consider the optimal interest rate rule ...

In standard macroeconomic models incorporating the natural rate hypothesis and rational expectations, monetary policy has no effect on real variables. But the rational expectations assumption that economic agents have learned from their mistaken predictions of the past ignores the transition period during which new information is combined with old information in the formation of new beliefs. Th...

Ten years of inflation targeting in New Zealand is used to test whether monetary policy conforms to the simple rules that have been recommended in the literature. While a Taylor rule with the standard parameters used in the US describes New Zealand monetary policy quite well, the Reserve Bank has focused more strongly on price stability, as required by its Policy Targets Agreements. Monetary po...

The authors assess the stabilization properties of simple monetary policy rules within the context of a small open-economy model constructed around the limited-participation assumption and calibrated to salient features of the Canadian economy. By relying on limited participation as the main nominal friction that affects the artificial economy, the authors provide an important check of the robu...

I develop an extension of the standard New Keynesian model to monetary policy regime switching to study the impact of uncertainty around the future inflation target. First, I fully characterize how the responses of current inflation and output to inflation target uncertainty depend on the monetary policy rule. If monetary policy is passive, inflation may increase far beyond the anticipated incr...

I develop an extension of the standard New Keynesian model to monetary policy regime switching to study the impact of uncertainty around the future inflation target. First, I fully characterize how the responses of current inflation and output to inflation target uncertainty depend on the monetary policy rule. If monetary policy is passive, inflation may increase far beyond the anticipated incr...

a r t i c l e i n f o JEL classification: E52 E58 F41 Keywords: Monetary policy rule Incomplete exchange rate pass-through Tobin's Q channel Asset prices This paper focuses on the role of the Tobin's Q channel in a two-country framework in which exporting firms set their prices on the basis of local currency pricing. Incomplete exchange rate pass-through significantly affects the Tobin's Q chan...

This dissertation consists of three essays organized as chapters. On the first chapter, I revisit the discussions which evaluate different fluctuations of major economic variables produced by different monetary policy rules for small open economies, given the existence of liability dollarization. In particular, monetary rules which either include or exclude exchange rate stability as a monetary...