We use a standard quantitative business cycle model with nominal price and wage rigidities to estimate two measures of economic ineffciency in recent U.S. data: the output gap - the gap between the actual and effcient levels of output - and the labor wedge - the wedge between households'...

In a simple dynamic macroeconomic model, it is shown that uncertainty about structural parameters does not necessarily lead to more cautious monetary policy, refining the accepted wisdom concerning the effects of parameter uncertainty on optimal policy. In particular, when there is uncertainty...

This paper demonstrates how a target for money growth can be beneficial for an inflation targeting central bank acting under discretion. Because the growth rate of money is closely related to the change in the interest rate and he growth of real output, delegating a money growth target to the...

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...

Simple models of monetary policy often imply optimal policy behavior that is considerably more aggressive than what is commonly observed. This paper argues that such counterfactual implications are due to model restrictions and a failure to account for multiplicative parameter uncertainty,...

Recent research suggests that commonly estimated dynamic Taylor rules augmented with a lagged interest rate imply too much predictability of interest rate changes compared with yield curve evidence. We show that this is not sufficient proof against the Taylor rule: the result could be driven by...

What are the implications of targeting different measures of inflation? We extend a basic theoretical framework of optimal monetary policy under inflation targeting to include several components of CPI inflation ratio, and analyze the implications of using different measures of inflation as...

Using an empirical New-Keynesian model with optimal discretionary monetary policy, we calibrate key parameters - the central bank's preference parameters; the degree of forward-looking behavior in the determination of inflation and output; and the variances of inflation and output shocks - to...

In light of the current low-interest-rate environment, we reconsider the merit of a money growth target (MGT) relative to a conventional in ation targeting (IT) regime, and to the notion of price level targeting (PLT). Through the lens of a New Keynesian model, and accounting for a zero lower...

Using an empirical New-Keynesian model with optimal discretionary monetary policy, we calibrate key parameters - the central bank's preference parameters; the degree of forward-looking behavior in the determination of inflation and output; and the variances of inflation and output shocks - to...