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...

We quantify the welfare differential between precommitment and discretionary monetary policy in three estimated models of the U.S. economy by calculating the permanent deviation of inflation from target that in welfare terms is equivalent to moving from discretion to precommitment. Using a range...

Robust control allows policymakers to formulate policies that guard against model misspecification. The principal tools used to solve robust control problems are state-space methods (see Hansen and Sargent, 2006, and Giordani and Söderlind, 2004). In this paper we show that the structural-form...

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...

We study the effects of optimized monetary policy in a semi-structural, estimated small open economy in situations where the policymaker has either complete or less than complete confidence in the model being free from misspecification errors. We use the robust control techniques developed by...