The paper reviews the recent literature on monetary policy rules. We exposit design problem within a simple baseline theoretical framework. then consider implications of adding various real world complications. Among other things, we show that optimal implicitly incorporates inflation targeting. also characterize gains from making credible commitment to fight inflation. In contrast conventional wisdom, may emerge even if central bank is not trying inadvisedly push output above its natural...

We estimate a forward-looking monetary policy reaction function for the postwar United States economy, before and after Volcker's appointment as Fed Chairman in 1979. Our results point to substantial differences estimated rule across periods. In particular, interest rate Volcker-Greenspan period appears have been much more sensitive changes expected inflation than pre-Volcker period. then compare some of implications rules equilibrium properties output, using simple macroeconomic model, show...

Abstract This paper reports estimates of monetary policy reaction functions for two sets countries: the G3 (Germany, Japan, and US) E3 (UK, France, Italy). We find that since 1979 each central banks has pursued an implicit form inflation targeting, which may account broad success in those countries over this time period. The evidence also suggests these have been forward looking: they respond to anticipated as opposed lagged inflation. As E3, even prior emergence `hard ERM', were heavily...

Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach by Richard Clarida, Jordi Gali and Mark Gertler. Published volume 91, issue 2, pages 248-252 of American Economic Review, May 2001

This paper reviews the recent literature on monetary policy rules. To organize discussion, we exposit design problem within a simple baseline theoretical framework. We then consider implications of adding various real word complications. concentrate developing results that are robust across reasonable variety competing macroeconomic frameworks. Among other things, show optimal implicitly incorporates inflation targeting. also characterize gains from making credible commitments to fight and...

We study the international monetary policy design problem within an optimizing two-country sticky price model, where each country faces a short run tradeoff between output and inflation.The model is sufficiently tractable to solve analytically.We find that in Nash equilibrium, for central bank isomorphic one it would face if were closed economy.Gains from cooperation arise, however, stem impact of foreign economic activity on domestic marginal cost production.While under banks need only...

This paper analyzes German monetary policy in the post-Bretton Woods era. Despite public focus on targeting, practice, involves management of short term interest rates, as it does United States. Except during mid to late 1970s, Bundesbank has aggressively adjusted rates achieve and maintain low inflation. The performance real economy, however, also influences its decision-making. Our formal analysis suggests that according a modified version feedback rule Taylor (1994) used characterize...

This paper investigates empirically and attempts to identify the sources of real exchange-rate fluctuations since collapse Bretton Woods. The paper's first two sections survey extend earlier, nonstructural empirical work on this subject by Campbell Clarida (1987), Meese Rogoff (1988), Cumby Huizinga (1990). main contribution is build estimate a three-equation open macro model in spirit Dornbusch (1976) Obstfeld (1985) model's structural shocks demand, supply, money using approach pioneered...

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We develop a framework to extract information regarding subsequent spot rate movements from the term structure of forward exchange premiums while admitting possible deviations rationality and presence risk premiums. Using weekly dollar–sterling, dollar– mark, dollar–yen data, restrictions implied by our are not rejected, rates together well represented vector error correction model (VECM). Dynamic out-of-sample forecasts up one year ahead indicate that VECM is strikingly superior range...

It is interesting to note in this context that Hamilton's (1988) seminal paper on Markov switching involved an application the term structure of interest rates.See also Clarida et al. (

<ns2:p>The COVID-19 pandemic and the mitigation efforts put in place to contain it delivered most severe blow U.S. economy since Great Depression. In this paper, we argue that Federal Reserve acted decisively with dispatch deploy all tools its conventional kit design, develop, launch within weeks a series of innovative facilities support flow credit households businesses. These measures, taken together, provided crucial 2020 are continuing contribute what is expected be robust economic...