Prior to the recent financial crisis, one of the most prominent examples of unconventional monetary stimulus was Japan's "quantitative easing policy" (QEP). Most analysts agree that QEP did not succeed in stimulating aggregate demand sufficiently to overcome persistent deflation. However, it...

Governments use monetary policies to counteract the effects of financial crises. In this paper we examine the subsidy that such "safety net" policies provide to the banking industry. Using a model of uncertainty-driven financial crises, we show that any monetary policy designed to maintain risky...

This paper reviews the progress that the science of monetary policy has made over recent decades. This progress has significantly expanded the degree to which the practice of monetary policy reflects the application of a core set of "scientific" principles. However, there remains, and will...

Central banks, whether independent or not, may occasionally be subject to external pressures to change policy objectives. We analyze the optimal response of central banks to such pressures and the resulting macroeconomic consequences. We consider several alternative scenarios regarding policy...

Statements released by the Federal Open Market Committee (FOMC) and congressional testimony by Chairman Greenspan are found to significantly affect market interest rates, indicating that central bank "talk" conveys important information to market participants. These effects arise not only...