FIROUGHOUT 1989, popular wisdom held that the U.S. monetary authority was faced with a daunting policy task: it should not permit too much money growth and cause prices to rise too rapidly, but it should not allow too little money growth and cause the economy to tip into recession as real output would fall. Sympathy for monetary policymakers, however, is not necessarily widespread among economi...

Evidence suggests that banks, like firms, face financial frictions when raising funds. The authors develop a quantitative, monetary business cycle model in which agency problems affect both the relationship between banks and firms and the relationship between banks and their depositors. As a result, bank capital and entrepreneurial net worth jointly determine aggregate investment, and are impor...

This paper argues that the primary objective of monetary policy should be long run price stability or at least a low average rate of in°ation. But there is also a welfare improving role for monetary policy in helping the economy adjust to nonpolicy shocks. This gives rise to a fundamental tension in the conduct of monetary policy. Understanding this tension is central to interpreting the qualit...

With the formation of European Monetary Union (EMU) in 1999, the eleven countries that adopted the Euro began to conduct a single monetary policy oriented towards unionwide objectives. The objective of this paper is to construct a small model of the Euro area, which may serve as a laboratory for evaluating the performance of alternative monetary policy strategies for the Euro area in the vein o...

Many studies have estimated the aggregate import demand function for Pakistan by using non-stationary data. Their findings suffer from the so-called ‘spurious regression’ problem. This study attempts to estimate the aggregate import demand function for Pakistan by employing Johansen and Juselius cointegration technique on the annual data for the period 1975-2005. Our results show that there is ...

Wesche as well as from participants of the session on " European Monetary Integration I " at the 47th International Atlantic Economic Conference, Vienna, and from an anonymous referee on this version of the paper. Of course, all remaining errors are those of the author. The views expressed are the author's and do not necessarily correspond to those of the Oesterreichische Nationalbank or those ...

The U.S. federal government is facing the prospect of exponentially rising entitlement obligations that are threatening to push the debt-to-GDP ratio to historically unparalleled levels. In an effort to understand the economic consequences of these projected debt run-ups, this paper takes a stand on how future policy must adjust and examines its implications for the aggregate economy. Assuming ...

This paper examines the asymmetric effects of monetary policy on output and the role of bank-lending behavior. We investigate whether contractionary and expansionary policies have asymmetric impacts on bank loans, and whether there are further differences in the response of small banks and big banks to policy actions. We also investigate the link between changes in bank lending and aggregate ec...

This paper studies U.S. in‡ation adjustment speed to aggregate technology shocks and to monetary policy shocks in a medium size Bayesian VAR model. According to the model estimated on the 1959-2007 sample, in‡ation adjusts much faster to aggregate technology shocks than to monetary policy shocks. These results are robust to di¤erent identi…cation assumptions and measures of aggregate prices. Ho...