It is well known that sunspot equilibria may arise under an interest-rate operating procedure in which the central bank varies the nominal rate with movements in future inflation (a forward-looking Taylor rule). This paper demonstrates that these sunspot equilibria may be learnable in the sense...

Should monetary policy respond to asset prices? This paper analyzes a general equilibrium model with imperfect capital markets and rigid nominal wages. Within the context of this model, there is a natural role for the benevolent central bank to dampen the real effects of asset price movements.

This paper integrates money into a real model of agency costs. Money is introduced by imposing a cash-in-advance constraint on a subset of transactions. The underlying real model is a standard real-business-cycle model modified to include endogenous agency costs. The paper’s chief contribution...

A demonstration that optimal monetary policy can be either procyclical or countercyclical in a model where wages are "sticky" because of a nominal contracting constraint.

What inflation rate should the central bank target? The authors address determinacy issues related to this question in a two-sector model in which prices can differ in equilibrium. They assume that the degree of nominal price stickiness can vary across sectors and that labor is immobile. This...

This paper reviews three recent books. Two books, one by Carl Walsh and one by Michael Woodford, focus on the development of monetary theory. In contrast, the third book is a collection of papers in an NBER volume on inflation targeting. This volume outlines some of the issues that arise when...