This paper is a selective survey of new or recent methods to extract information about market expectations from asset prices for monetary policy purposes. Traditionally, interest rates and forward exchange rates have been used to extract expected means of future interest rates, exchange rates...

A dynamic, stochastic optimizing macromodel with predetermined money wages and labour market monopoly power is used to examine the effect on current macroeconomic variables of a temporary increase in variability of the future money supply. As a benchmark, we show that under perfect wage-price...

This paper exploits arbitrage conditions for bills of exchange with different maturities to provide new evidence on commercial interest rates in Amsterdam, London, and Paris during the 18th century. The lesson that emerges is that commercial interest rates were very low in all three centers and...

This article examines the dynamic relationship between two key US money market interest rates – the federal funds rate and the 3-month Treasury bill rate. Using daily data over the period from 1974-99, we find a long-run relationship between these two rates that is remarkably stable across...

The UK pound left the ERM on 16 September 1992 after a period of turbulence. UK monetary policy soon shifted to lower short interest rates and an inflation target was announced. This paper uses daily option prices to estimate how the market’s probability distribution of the future Deutsche...

Capital market theory predicts that the wealth distribution of an economy affects real interest rates. This paper empirically analyzes this relationship for the US, the UK and Sweden. We obtain that measures of wealth inequality are positively linked to the real rate on government securities in...

This paper examines the effects of tax cuts in a multi-country world where both labour supply and capital formation are endogenous and taxes are distortionary. We highlight four channels through which tax cuts affect interest rates and the economy in general: (i) an increase in the supply of...

Historical estimates of the Fisher effect and the informational content in the yield curve may not be relevant after a change in monetary policy. This paper uses a small dynamic rational expectations model with staggered price setting to study how central bank preferences (and thereby monetary...

This paper provides a critical survey of the methods employed to model the effects of risk in econometric models. Most of the popular methods are shown to suffer from errors-in-variables bias, and an instrumental variable method is suggested to overcome this problem. The technique exploits the...

This paper considers the effects of monetary and fiscal policies in an optimizing model with capital accumulation and finite lives. An increase in monetary growth is no longer superneutral in a money-capital economy, but leads to a reduction in the real interest rate and increases in the capital...