What is the welfare loss arising from uncertainty about true policy targets? We quantify these effects in a DSGE model where private agents are unable to distinguish between temporary shocks to potential output and to the inflation target. Agents use optimal filtering techniques to construct...

Using a standard forward-looking New Keynesian model, this paper investigates rational expectation equilibrium determinacy and macroeconomic performance of simple monetary policy rules under exogenous versus endogenous tax policies when there is tax uncertainty. Under the endogenous tax...

The recent global financial crisis has increased interest in macroeconomic models that incorporate financial frictions. We illustrate the simulation properties of five medium-sized general equilibrium models used by central banks in the Eurosystem. The models include a financial accelerator...

This paper investigates how an increase in the United States Federal Fund rate affects the United States economy and how the effects are transmitted to the Canadian economy using the factor-augmented VAR (FAVAR) approach of Stock and Watson (2005) and Bernanke et al. (2005). A distinguishing...

Previous works related to optimal denominations for coins and banknotes consider that the “principle of least effort” that defines an efficient payment is the most important criterion for two main reasons. Firstly, it is more convenient for transactors and, secondly, it limits the production...

We suggest a simple test of whether an inflation target anchors private-sector inflation expectations. The test is easy to compute and it is robust to various sources of misspecification. The test may be a useful alternative to dispersion measures commonly studied in research on inflation...

This paper deals with transition mechanisms through which financial market conditions affect real economic growth in the Euro area. The informational content of financial variables for predicting real economic growth is assessed, allowing for asymmetric responses to shocks. A nonlinear framework...

How do macroeconomic variables affect housing prices? In this paper we apply a non-linear modeling approach, the Nonlinear Auto Regressive Moving Average with eXogenous inputs (NARMAX), to investigate determinants of housing prices in China over the period 1999:01 to 2010:06. The NARMAX...

This study analyses Granger-causality between the return series of CPI and PPI (i.e., inflation measured by CPI and PPI) for Romania, by using monthly data covering the period of 1991m1 to 2011m11. To analyse the issue in depth, this study decomposes the time-frequency relationship between CPI-...

The primary objective of this paper is to investigate the interaction of formal and informal financial markets and their impact on economic activity in quasi-emerging market economies. Using a four-sector dynamic stochastic general equilibrium model with asymmetric information in the formal...