This article analyses the welfare consequences of delegating to the central bank the task of minimising deviations of forecasts of goal variables from their target values. The delegated objectives considered in this article are motivated by the observation that central banks oftentimes operate...

This paper serves two purposes. First, it provides estimates of an optimisation-based equilibrium model with sticky prices and wages. Second, the estimated model is used to analyse the welfare properties of various interest rate rules for conducting monetary policy. As shown by Erceg et al...

We study the implications for optimal monetary policy of introducing habit formation in consumption into a general equilibrium model with sticky prices. Habit formation affects the model's endogenous dynamics through its effects on both aggregate demand and households' supply of output. We show...

Recent trends toward greater central bank independence and the adoption of formal inflation targeting by several countries have served to emphasise the importance of communication policy. In this paper, we explore some of the economic effects of public information that arise whenever public...

Data on monetary aggregates are subject to periodic redefinitions, presumably in part to improve their link to measures of output. Money data are also revised on a regular basis. Taking these data imperfections into account, we reassess the evidence on the marginal predictive content of M1 and...

This paper examines the impact of public information in an economy where agents also have diverse private information. Since disclosures by central banks are an important source of public information, we are able to assess how the words of central bankers shape expectations, in addition to their...

This paper reviews research carried out on exchange rates and monetary policy by central banks that participated at the Autumn Meeting of Central Bank Economists on "Exchange rates and monetary policy", which the BIS hosted on 28-29 October 2004. The first part of the paper focuses on the...

This paper examines the role of the natural rate of interest in the conduct of monetary policy. The natural rate figures prominently in many theories of the business cycle and of inflation fluctuations, and therefore has the potential to play a key role in monetary policy given the current...

Why are spreads on corporate bonds so wide relative to expected losses from default? The spread on Baa-rated bonds, for example, has been about four times the expected loss. We suggest that the most commonly cited explanations – taxes, liquidity and systematic diffusive risk – are...

This paper studies the influence of the state of the business cycle on credit ratings. In particular, we assess whether rating agencies are excessively procyclical in their assignment of ratings. Our analysis is based on a model of ratings determination that takes into account factors that...