Real interest rates and central bank operating procedures

We use consumption-based CAPM models (with fixed and flexible wages) to analyze the effect of central bank operating procedures on the ex ante real rate of return on a one-period nominal bond. We show that operating procedures affect both the risk-free rate and the risk premium. Nominal interest rate targeting produces the highest real interest rates; money targeting produces the lowest rates; and nominal income targeting comes out somewhere in between. Our simulations suggest that the central bank’s choice of operating procedure may make as much as 50 or 100 basis points difference in the real rate of interest. The role of monetary aggregates has diminished in most central banks’ operating procedures, and this provides one explanation for the common perception that real interest rates may have risen. Nevertheless, our analysis also demonstrates that there is no presumption that monetary targeting dominates from a welfare point of view. (C) 1998 Elsevier Science B.V. All rights reserved

Assessing sticky price models using the Burns and Mitchell approach

This article evaluates sticky-price models using the methods proposed by Burns and Mitchell, focusing on the monetary aspects of the business cycle. Recent research has emphasized the responses of models to shocks at the expense of its systematic component. Whereas sticky-price models have been successful at replicating impulse response functions from vector autoregressions, this article highlights that they are unable to mimic the data for nominal variables. Moreover, the results are robust to the specification of the Phillips curve, including its backward-looking variant, calibrated values and the inclusion of fiscal policy shocks. Since being able to mimic the data is the lowest hurdle a Model must pass, these results pose a challenge for sticky price models.

Fiscal Policy and Macroeconomic Stabilizations: What are the Gains from Cooperation?

Fiscal policy, Spillovers, Stabilization, Coordination, New open economy, F41, F42, E42,

Testing a DSGE Model of the EU Using Indirect Inference

Bootstrap, DSGE model, VAR model, Model of EU, Indirect inference, Wald statistic, C12, C32,

Two Orthogonal Continents? Testing a Two-country DSGE Model of the US and the EU Using Indirect Inference

Bootstrap, Open economy model, DSGE, VAR, New Keynesian, New Classical, Indirect inference , Wald statistic, C12, C32, C52, E1,

Euro-Area Inflation: does the Balassa–Samuelson effect matter?

Inflation target, Balassa–Samuelson effect, Monetary policy, Euro Area,

Fiscal sustainability across government tiers

Fiscal policy, Fiscal rules, EMU, SGP, Fiscal federalism, E61, E62, H11, H72, H77.,