The zero lower bound on nominal interest rates constrains the central bank's ability to stimulate the economy during downturns. We use the FRB/US model to quantify the effects of the bound on macroeconomic stabilization and to explore how policy can be designed to minimize these effects. During...

The focus of monetary policy has shifted markedly over the past 15 years away from attempts to fine tune the economy towards the longer-run goal of attaining price stability and creating the necessary conditions for sustainable economic growth. In an attempt to minimise the costs of such a...

This paper explores the theoretical foundations of a new approach to monetary policy. Proponents of this approach hold that when inflation is moderate but still above the long-run objective, the Fed should not take deliberate anti- inflation action, but rather should wait for external...

Under a conventional policy rule, a central bank adjusts its policy rate linearly according to the gap between inflation and its target, and the gap between output and its potential. Under the opportunistic approach to disinflation a central bank controls inflation aggressively when inflation is...

A number of observers have advocated recently that the Federal Reserve take an "opportunistic" approach to the conduct of monetary policy. A hallmark of this approach is that the central bank focuses on fighting inflation when inflation is high but focuses on stabilizing output when inflation is...