In inflation targeting (IT) regimes, the Monetary Authority announces an explicit objective, the target for inflation. However, other objectives that possibly conflict with the inflation goal are present, such as keeping output close to its potential level and the stability of financial markets....

We determine optimal monetary policy under commitment in a forward-looking New Keynesian model when nominal interest rates are bounded below by zero. The lower bound represents an occasionally binding constraint that causes the model and optimal policy to be nonlinear. A calibration to the U.S....

Ignoring the existence of the zero bound on nominal interest rates one considerably understates the value of monetary commitment in New Keynesian models. A stochastic forward-looking model with an occasionally binding lower bound, calibrated to the U.S. economy, suggests that low values for the...

It is tempting to interpret empirical evidence in a number of recent studies as suggesting that term structure spreads help predict future inflation over moderate horizons of 3 to 5 years. This paper argues that common measures of the predictive power of the term structure spread for future...

This paper examines the relationships between output, prices, interest rates, and M2 using data sets which were available in real time from 1973:1 to 1997:4. The purpose is threefold. First, the paper delineates a potential role for M2 in policymaking. Second, it provides a more accurate basis...