Monetary models of the business cycle often neglect the importance of investment and the capital stock in the monetary transmission mechanism. Most of the recent literature assumes either investment adjustment costs or ignores capital altogether. This paper re-takes the argument put forward by...

This article evaluates sticky-price models using the methods proposed by Burns and Mitchell, focusing on the monetary aspects of the business cycle. Recent research has emphasized the responses of models to shocks at the expense of its systematic component. Whereas sticky-price models have been...

Working with micro-founded loss functions to derive and analyse optimal policy ensures consistency with the model used and overcomes the misleading prescriptions that result from using exogenous ad hoc loss functions. However, when allowance is made for the fact that different theories of...

Working with micro-founded loss functions to derive and analyse optimal policy ensures consistency with the model used and overcomes the misleading prescriptions that result from using exogenous ad hoc loss functions. However, when allowance is made for the fact that different theories of...

type="main" <p>We use quantile regressions to model monetary policy reaction functions in three small open economies: Australia, Canada and New Zealand. Focusing on Taylor-type rules, we find evidence of asymmetric interest rate responses for all the countries considered, with monetary policy...</p>

Given the large amount of interaction between research on monetary policy and its practice, this article examines whether some simple monetary policy rules that have been proposed in the academic literature, part of which has originated from within central banks, provide a reasonable...

Modern monetary policy analysis is built around the concept of an interest rate rule that responds to both inflation and output. This paper evaluates the quantitative implications of having a policy rule target different definitions of the output gap in a New Keynesian model with endogenous...

This paper evaluates New Keynesian models using RBC methods for a number of key macroeconomic variables. Its main findings are that the NK model provides a good description of the behaviour of real variables but performs very poorly when nominal variables are considered. The latter result is...

New Keynesian models of the business cycle have become the new paradigm of monetary economics, often used for policy analysis. This paper shows that this class of models fail in one crucial respect: they imply a strong negative contemporaneous correlation between inflation and output....