The interdependence of national economies implies externalities in policy making, and these externalities lead to inefficient outcomes when policy-making is decentralised and independent. These externalities have been well documented from a theoretical point of view. This paper reports our...

This survey essay considers how rational expectations have changed our evaluation of monetary policy. In the first section, various underpinnings of the "Phillips curve" relation between inflation and output are reviewed. All are concluded to be products of particular institutional set-ups whose...

Using indirect inference based on a VAR we confront US data from 1972 to 2007 with a standard New Keynesian model in which an optimal timeless policy is substituted for a Taylor rule. We find the model explains the data both for the Great Acceleration and the Great Moderation. The implication is...

This paper compares the inflation targeting framework adopted by the European Central Bank (ECB) vis-à-vis the Bank of England (BOE) and argues that the ECB's strategy does not constitute the best international practice. The definition of price stability adopted by the ECB is ambiguous and...

This paper develops a welfare-based model of monetary policy in an open economy. We focus on the extent to which monetary policy should be employed in maintaining the exchange rate. The traditional approach maintains that exchange rate flexibility is desirable in the presence of real...

This paper studies monetary policy games in a two-period Mundell-Fleming model, under a regime of managed exchange rates. A regime of managed exchange rates is defined as one where exchange rates are pegged but bilateral parities can be changed from time to time. The paper argues that such a...

This paper considers the effects of monetary and fiscal policies in an optimizing model with capital accumulation and finite lives. An increase in monetary growth is no longer superneutral in a money-capital economy, but leads to a reduction in the real interest rate and increases in the capital...

This paper analyses the costs and benefits of European monetary unification. The benefits take the form of the reduction in exchange risk, equalization of interest rates, decline in relative price variability and general increase in economic efficiency likely to accompany unification. The costs...

This paper analyses and compares the effects of common demand and supply shocks on the setting of optimal monetary policies under a clean float, a managed exchange rate system (such as the EMS) and a monetary union, when welfare depends on unemployment and the cost of living. The results suggest...