We document that inflation risk in the U.S. varies significantly over time and is often asymmetric. To analyze the macroeconomic effects of these asymmetric risks within a tractable framework, we construct the beliefs representation of a general equilibrium model with skewed distribution of...

This study empirically investigates the impact of Inflation Targeting (IT) on nominal interest rates over the past 40 years, focusing on 10 advanced and emerging economies. By using a Binary Regime Model embedded within a Backward-Looking Taylor, our findings confirm that IT adoption has...

This paper investigates the determinants of inflation target credibility (ITC) using a unique survey we designed to measure the credibility of the ECB's inflation target. Containing over 200,000 responses from German consumers collected between January 2019 and November 2024, our dataset enables...

The monetary policy of the People's Bank of China (PBoC) during 2001-2023 is assessed in terms of Taylor and McCallum rules, as well as a proposed composite monetary policy rule. PBoC policy is found to be responsive to the gap between target and actual nominal GDP in the McCallum rule, as well...

We investigate the effects of debt-capital ratio and expected inflation rate on the stability of the economy using a Minsky model and reconsidering Fisher's debt-deflation theory. We have developed static and dynamic models that formalize an inflation-targeting policy. The static model reveals...

The traditional approach to monetary policy, which relied on one instrument to achieve a single goal, has proven ineffective during recent periods of global instability. In response to the challenges that this traditional framework could not address, non-standard monetary policy instruments have...

This paper analyzes the unanalized topic in macroeconomic (monetary) politics, which is the emergence of the currency crisis as a consequence of targeting inflation. Many central banks adopted inflation targeting under a pressure from the IMF. Sudden depreciation of exchange rate which results...

Under inflation forecast targeting, central banks such as the ECB adjust policy to keep expected inflation on target. We evaluate the ECB’s inflation forecasts: they are unbiased and efficient but contain little information at forecast horizons beyond three quarters. In a New Keynesian model...

This study proposes an implicit index for central bank credibility, which is critical in developing countries implementing an inflation-targeting regime. In a credible central bank, the policy rate impacts the interest rate on short-term deposits. Under this assumption, the residuals obtained...

Since the Covid-19 pandemic, many economic policy protocols have come under scrutiny regarding their ability to handle unforeseen events and systemic effects. In particular, inflation targeting regimes have been questioned due to significant inflationary deviations resulting from a substantial...

We propose novel measures to evaluate the risk profile of longer-term inflation expectations, using data on inflation probabilities from the ECB's Survey of Professional Forecasters (SPF). Unlike existing indicators, these measures specifically incorporate the central bank's inflation target....

This paper estimates a New Keynesian model with a nonlinearity in the monetary policy rule to capture the practice of inflation targeting with target zones or tolerance bands. Private-sector agents form subjective expectations, update their beliefs over time using a perceived model of the...

This study examines the dynamic relationship between inflation, inflation uncertainty, and economic performance in Mexico using the Generalized Autoregressive Conditional Heteroskedasticity-in-Mean (GARCH-M) and bivariate GARCH-in-mean (BGARCH-M) models. Based on monthly data from 1995 to 2019,...

This paper proposes that the South African Reserve Bank should pursue a 3% inflation target, instead of the current 4.5% midpoint of a 3%-to-6% target range. Doing so may also result in lower inflation volatility, thereby reducing nominal exchange rate risk for investment and trade, and may thus...

South Africa's inflation-targeting framework has served the country well, playing a key role in reducing inflation since 2000. However, with inflation still above that of key trading partners, questions have arisen whether a potential shift from the current target band (3 to 6 percent) to a...

We investigate the impact of high frequency monetary policy shocks in Brazil using daily data and Rigobon' s identification via heteroskedasticity. We show that positive changes in interest rates cause inflation expectations to decline and the exchange rate to appreciate. To the best of our...

As inflation targeting (IT) turns 35, it has become a key institutional monetary framework by central banks. Yet, this paper shows that stark differences exist among inflation targeting countries in the conduct of monetary policy. Behind such heterogeneity, the legacy of a high inflation history...

The post-pandemic inflation surge underscores that monetary policy continues to be hampered by two long-standing challenges: the pretence of knowledge and the proclivity for discretion. Focusing on the Federal Reserve, this paper demonstrates how simple policy rules, designed to be robust under...

This study examines the floating rate channel-a mechanism through which monetary policy affects firms' investment and credit demand based on their exposure to variable rate loans. Using a granular loan-level dataset from the euro area, we find that firms with variable rate loans significantly...

This study analyzed the impact of monetary policy on unemployment in Ghana. In addition, the direction of causality among the monetary policy rate, the growth of the money supply and unemployment was performed. We used the vector error correction model and annual data from 1991 to 2020. The...

Subdued economic activity and low tax revenues, especially during crises, drive borrowing and increase public debt. During these periods, to ease the debt burden, central banks may face pressure to deviate from policy targets. Under fiscal dominance, debt sustainability relies on low interest...

We analyze micro-level data from the Canadian Survey of Consumer Expectations through the lens of a heterogeneous-expectations model to study the state-dependent risk of inflation expectations unanchoring in low- and high-inflation environments. In our model, agents are either trend-chasing or...