The link between monetary policy and asset price movements has been of perennial interest to policy makers. In this Paper we consider the potential case for pre-emptive monetary restrictions when asset price reversals can have serious effects on real output. First, we provide some historical...

The inertia found in econometric estimates of interest rate rules is a continuing puzzle. Many reasons for it have been offered, though unsatisfactorily, and the issue remains open. In the empirical literature on interest rate rules, inertia in setting interest rates is typically modelled by...

This Paper provides a discussion of some aspects of aggregate supply and demand determination in the United Kingdom. It argues that: (1) UK policymakers in the 1960s and 1970s did not use the downward-sloping Phillips curve as a model of inflation or a guide to policy. The explanation proposed...

Understanding the degree of measurement error in the estimates of the output gap available to policymakers in ‘real time’ is important both for the formulation of monetary policy and for the study of inflation behaviour. For the United Kingdom, no official output gap series was published for...

New-Keynesian models are characterized by the presence of expectations as explanatory variables. To use these models for policy evaluation, the econometrician must estimate the parameters of expectation terms. Standard estimation methods have several drawbacks, including possible lack of...

The New-Keynesian Taylor-Rule model of inflation determination with no role for money is incomplete. As Cochrane (2007a, b) argues, it has no credible mechanism for ruling out bubbles (or deal with the non-uniqueness problem that arises when the Taylor principle is violated) and as a result...

In January 2000 the Swiss National Bank adopted a new monetary policy framework incorporating a price stability objective defined as (any rate of) CPI inflation below 2 percent. We contrast this framework with inflation targeting strategies and review the SNB’s policy decisions since its...

We examine global economic dynamics under learning in a New Keynesian model in which the interest-rate rule is subject to the zero lower bound. Under normal monetary and fiscal policy, the intended steady state is locally but not globally stable. Large pessimistic shocks to expectations can lead...

The European Central Bank has assigned a special role to money in its two pillar strategy and has received much criticism for this decision. The case against including money in the central bank's interest rate rule is based on a standard model of the monetary transmission process that underlies...

We analyse the panel of the Greenbook forecasts (sample 1970-96) and a large panel of monthly variables for the US (sample 1970-2003) and show that the bulk of dynamics of both the variables and their forecasts is explained by two shocks. Moreover, a two factor model which exploits, in real...