The purpose of this paper is to examine the merits of monetary policy rules that utilize as their principal target variable the level or growth rate of some aggregate reasure of nominal spending, such as nominal GDP, rather than a monetary aggregate or an index of inflation (either alone or in...

The recent debate over monetary policy strategies concludes that monetary targeting in practice lead to very similar patterns of central bank behaviour. This raises the question why central banks insist on the strategies they use. In this paper, we develop an answer from political economy. After...

Can higher inflation diminish the government debt and contribute to financing the budget deficit? And how do these public finance concerns influence inflationary expectations?

By driving a wedge between the marginal returns to real and financial capital, inflation distorts production. The elimination of this distorsion increases both the level and the rate of growth of output. First, increased price stability improves the utilization of capital and thus increases the...

We define and study transparency, credibilitym and reputation in a model where the central bank's characteristics are unobservable to the private sector and are inferred from the policy outcome. A low-credibility bank optimally conducts a more inflationary policy than a high-credibility bank, in...

This paper discusses how price stability can be defined and how price stability can be maintained in practive. Some lessons for the Eurosystem are also considered.

Central banks now generally agree that conventional monetary aggregates are of little use as targets or even indicators for monetary policy, owing to the instability of money demand relations in economies with well-developed financial markets.But monetary theory has provided little guidance for...

Does the practice of inflation targteting reflect sound economic principles? Certainly, the inflation-targeting regime in New-Zealand has been subject to considerable academic scrutiny along these lines. I suggest, however, that some other questions are more interesting for today's discussion....

We demonstrate the existence of a monetary policy tradeoff between price-inflation variability and output-gap variability in an optimizing-agent model with staggered nominal wage and price contracts. This variance tradeoff is absent only in the special case in which prices are sticky and wages...

Policy rules that are consistent with inflation targeting are examined in a small macroeconometric model of the US economy. We compare the properties and outcomes of explicit "instrument rules" as well as "targeting rules". The latter, which imply implicit instrument rules, may be closer to...