(Copyright: Elsevier)

is the optimal policy. We derive the targeting criterion that implements optimal monetary policy under commitment and show under what conditions the target depends on leads or lags of the risk premium. Finally, the paper demonstrates that the degree of price stickiness and/or the nature of...

This paper derives the optimal lending contract in the financial accelerator model of Bernanke, Gertler and Gilchrist (BGG). The optimal contract includes indexation to the aggregate return on capital, household consumption, and the return to internal funds. This triple indexation results in a...

Recent monetary policy experience suggests a simple test for models of monetary non-neutrality. Suppose the central bank pegs the nominal interest rate below steady state for a reasonably short period of time. Familiar intuition suggests that this should be inflationary. We pursue this simple...

If a central bank adopted a zero inflation target, it would, in practice, occasionally deviate up and down from that rate, and the economy would experience episodes of mild inflation and deflation. Is deflation-a decrease in the level of prices-a cause for concern? Deflation can cause output to...

We document increased central bank independence within the set of industrialized nations. This increased independence can account for nearly two thirds of the improved inflation performance of these nations over the last two decades.

An examination of contagious bank runs and a discussion of how private clearinghouses have protected against widespread bank failures, with the determination that federal deposit insurance may not be necessary to protect against runs; conclusion of February 1 issue.