This Paper suggests a formal interpretation of the ECB’s two-pillar framework for monetary policy. I decompose inflation in the euro area into high- and low-frequency (or short-run and medium/long-run) components, which are correlated with monetary growth and the output gap, respectively. I...

This paper reviews the unconventional U.S. monetary policy responses to the financial and real crises of 2007-09, divided into three groups: interest rate policy, quantitative policy, and credit policy. To interpret interest rate policy, it compares the Federal Reserve’s actions with the...

Starting in the early 1990s, several emerging market and transition economies (EMEs) have adopted inflation targeting (IT). In this Paper we discuss a number of issues that arise in this context: (a) the definition of IT, (b) the role of preconditions for IT, (c) the use of intermediate exchange...

The main issue in the early years of EMU is one of credibility. On one hand, high exposure to asymmetric shocks and low adaptability (be it in terms of stabilization or adjustment) to both symmetric and asymmetric shocks make the early years of EMU potentially problematic. On the other hand,...

The paper establishes the following: First, money is neutral even if there is a non-zero stock of non-monetary nominal public debt, because the government adjusts real taxes to satisfy its inter-temporal budget constraint. Second, Woodford’s fiscal theory of the price level, according to which...

This paper shows that a zero-sum redistribution of wealth within a country can have persistent aggregate effects. Motivated by the case of an unanticipated inflation episode, we consider redistribution shocks that shift resources from old to young households. Aggregate effects arise because...

Does time-varying business volatility affect the price setting of firms and thus the transmission of monetary policy into the real economy? To address this question, we estimate from the firm-level micro data of the German IFO Business Climate Survey the impact of idiosyncratic volatility on the...

We present a new partial equilibrium theory of price adjustment, based on consumer loss aversion. In line with prospect theory, the consumers' perceived utility losses from price increases are weighted more heavily than the perceived utility gains from price decreases of equal magnitude. Price...

This Paper explores the relationship between the Kydland-Prescott Barro-Gordon model and models with asymmetric policy preferences. While both yield an inflation bias, recession aversion dampens the output effects of contractionary supply shocks. Some inflation may therefore reflect policy...