The recent volatility in global commodity prices and in the price of oil, in particular, has created renewed interest in the question of how monetary policy makers should respond to oil price fluctuations. In this paper, we discuss why this question is ill-posed and has no general answer. The...

Motivated by policy statements of central bankers, we propose to regard the central banker as a risk manager who aims at containing inflation and the deviation of output from potential within pre-specified bounds. We develop formal tools of risk management that may be used to quantify the risks...

In deciding a monetary policy stance, central bankers need to evaluate carefully the risks the current economic situation poses to price stability. We propose to regard the central banker as a risk manager who aims to contain inflation within pre-specified bounds. We develop formal tools of risk...

In deciding the monetary policy stance, central bankers need to evaluate carefully the risks the current economic situation poses to price stability. We propose to regard the central banker as a risk manager who aims to contain inflation within pre-specified bounds. We develop formal tools of...

In deciding the monetary policy stance, central bankers need to evaluate carefully the risks the current economic situation poses to price stability. We propose to regard the central banker as a risk manager who aims to contain inflation within pre-specified bounds. We develop formal tools of...

After a brief review of classical, Keynesian, New Classical and New Keynesian theories of macroeconomic policy, we assess whether New Keynesian Economics captures the quintessential features stressed by JM Keynes. Particular attention is paid to Keynesian features omitted in New Keynesian...

In this Paper we present a model that combines the second-generation trade-off between costs of maintenance and abandonment with possible balance-sheet problems in the corporate sector. We show how debt levels can move a small economy from a fixed exchange rate to a floating exchange rate...

The link between monetary policy and asset price movements has been of perennial interest to policy makers. In this Paper we consider the potential case for pre-emptive monetary restrictions when asset price reversals can have serious effects on real output. First, we provide some historical...

In this paper we propose a new way to formulate optimal policy based on a quadratic intertemporal welfare function where the dynamic constraint is based on a VAR model of the economy which we call the PVAR method. We argue that the VAR under control should not be derived simply by replacing the...