We study how real exchange rate dynamics are affected by monetary policy in dynamic, stochastic, general equilibrium, sticky-price models. Our analytical and quantitative results show that the source of interest rate persistence – policy inertia or persistent policy shocks – is key. When the...

We examine optimal monetary policy under prevailing Chinese policies – including capital controls, nominal exchange rate targets, and costly sterilization of foreign capital inflows. China’s combination of capital controls and exchange rate pegs disrupts its monetary policy, precluding...

We combine questions from the Michigan Survey about the future path of prices, interest rates, and unemployment to investigate whether U.S. households are aware of the so-called Taylor (1993) rule. For comparison, we perform the same analysis using questions from the Survey of Professional...

The standard argument for abstracting from capital accumulation in sticky-price macro models is based on their short-run focus: over this horizon, capital does not move much. This argument is more problematic in the context of real exchange rate (RER) dynamics, which are very persistent. In this...

Housing is an important component of the consumption basket. Since both rental prices and goods prices are sticky, the literature suggests that optimal monetary policy should stabilize both types of prices, with the optimal weight on rental inflation proportional to the housing expenditure...

A number of recent papers have used different financial market instruments to measure near-term expectations of the federal funds rate and the high-frequency changes in these instruments around FOMC announcements to measure monetary policy shocks. This paper evaluates the empirical success of a...

We present an algorithm and software routines for computing nth order Taylor series approximate solutions to dynamic, discrete-time rational expectations models around a nonstochastic steady state. The primary advantage of higher-order (as opposed to first- or second-order) approximations is...

This paper addresses two substantive issues: (1) Does the magnitude of the expectation effect of regime switching in monetary policy depend on a particular policy regime? (2) Under which regime is the expectation effect quantitatively important? Using two canonical DSGE models, we show that...