Ball (1997) shows using a small closed economy model that nominal GDP targeting can lead to instability. This paper extends Ball's model to uncover the role inflation expectations play in generating this instability. By changing the process by which inflation expectations are formed in the...

This paper uses a small data-consistent model of the United States to identify and estimate the Federal Reserve's policy preferences. We find critical differences between the policy regimes in operation during the Burns-Miller and Volcker-Greenspan periods. Over the Volcker-Greenspan period we...

Economic outcomes in dynamic economies with forward-looking agents depend crucially on whether or not the central bank can precommit, even in the absence of the traditional "inflation bias." This paper quantifies the welfare differential between precommitment and discretionary policy in both a...

This paper solves for optimal policy rules in a stylized small open economy model under a spectrum of targeting regimes. These policy reaction functions are presented as feedback rules highlighting the dominant state variables in each rule. Optimal simple rules - rules that exploit a reduced...

This paper takes the parameters in central bank loss functions as fundamental preferences to be estimated from the data. It is these preferences (along with target values) that define the policy regime in operation and that potentially change with senior central bank appointments. Optimizing...

This paper presents techniques to solve for optimal simple monetary policy rules in rational expectations models, assuming discretion. The techniques described are notable for the flexibility they provide over the structure of the policy rule being solved for. Specifically, not all state...

An important issue in small open-economies is whether policymakers should respond to exchange rate movements when they formulate monetary policy. Micro-founded models tend to suggest that there is little to be gained from responding to exchange rate movements, and the literature has largely...

Economic outcomes in dynamic economies with forward-looking agents depend crucially on whether or not the central bank can precommit, even in the absence of the traditional "inflation bias." This paper quantifies the welfare differential between precommitment and discretionary policy in both a...

This paper studies robust control problems when policy is set with commitment. One contribution of the paper is to articulate an approximating equilibrium that differs importantly from that developed in Hansen and Sargent (2003). The paper illustrates how the proposed approximating equilibrium...

This paper uses a small data-consistent model of the United States to identify and estimate the Federal Reserve's policy preferences. We find critical differences between the policy regimes in operation during the Burns-Miller and Volcker-Greenspan periods. Over the Volcker-Greenspan period we...