We estimate forward–looking interest rate reaction functions for the G3 and some inflation targeters. Shifts in the conduct of monetary policy are detected for the USA and Japan. In contrast with the existing literature, we show that these countries only shifted to policies consistent with an implicit inflation–targeting regime in the 1990s. Inflation targets and central bank reforms in Sweden, the UK, Canada and New Zealand only led in some cases to changes in policy responses, and changes in policy pre–date the introduction of targets. We challenge the one–model–fits–all approach towards monetary policy that permeates much of the current literature.

This paper examines the interaction of monetary and fiscal policies using an estimated New Keynesian dynamic general equilibrium model for the US. In contrast to earlier work using VAR models, we show that the strategic complementarity or substitutability of fiscal and monetary policy depends crucially on the types of shocks hitting the economy, and on the assumptions made about the underlying structural model. We also demonstrate that countercyclical fiscal policy can be welfare-reducing if fiscal and monetary policy rules are inertial and not coordinated .

This paper investigates the response of the shadow economy to banking crises. Our empirical analysis, based on a large sample of countries, suggests that the informal sector is a powerful buffer, which expands at times of banking crises and absorbs a large proportion of the fall in official output. To rationalise our evidence, we build a dynamic stochastic general equilibrium model which accounts for financial frictions and nominal rigidities. In line with the empirical literature on the shadow economy, we assume that in the informal sector access to external finance is limited, and the production technology is relatively more labour intensive. Following a banking shock in the official sector, the model predicts a large negative transmission to the unofficial economy: about 60% of the official sector contraction is absorbed by the growth of the shadow economy.

This study investigates the empirical relationship between unemployment and growth in a number of OECD economies. A structural time series model is used for labour productivity growth to demonstrate that, in most economies, there seems to be a negative correlation between unemployment and labour productivity growth. The results provide little support for the theory that recessions may stimulate productivity growth. The use of a structural time series approach allows an attempt to model the underlying dynamics of productivity growth jointly with the effect of unemployment.

No abstract

When the central bank is the sole policymaker, the combination of limited asset market participation and consumption habits can have dramatic implications for the optimal monetary policy rule and for stability properties of a business cycle model characterized by price and nominal wage rigidities. In this framework, a simple countercyclical …scal rule plays a twofold role. On the one hand it ensures uniqueness of the rational expectations equilibrium when monetary policy follows a standard Taylor rule. On the other hand it brings aggregate dynamics substantially closer to their socially e¢ cient levels.JEL classi…cation: E52.

No abstract

This paper derives a New Keynesian dynamic general equilibrium model with liquidity constrained consumers and sticky prices. The model allows a role for both government spending and taxation in the DGE model. The model is then estimated using US data. We demonstrate that there seems to be a signi…cant role for rule-of-thumb consumer behaviour. Our model is then used to analyse the interaction between …scal and monetary policies. We examine the extent to which …scal policy (automatic stabilisers) assist or hinder monetary policy when the latter takes a standard forward-looking in ‡ation targeting form. We also examine the extent to which inertia in …scal policy and the presence of rule-of-thumb consumers a¤ects output and in ‡ation variability in the presence of such a monetary policy rule.