Can optimal policy projections in DSGE models be useful for policymakers?

Jesper Lindé, Lars E.O. Svensson, Stefan Laséen, Malin Adolfson 16 September 2008

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Over the last couple of years many central banks, for instance the ECB, the Federal Reserve Board, and Sveriges Riksbank, have started to build and estimate dynamic stochastic general equilibrium (DSGE) models, following the work by Christiano, Eichenbaum, and Evans (2005), and Smets and Wouters (2003). Sveriges Riksbank incorporated its open economy DSGE model, Ramses, into the daily process of forecasting and policy analysis in 2005; see Adolfson, Laséen, Lindé, and Villani (ALLV) (2007).

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Topics:  Monetary policy

Tags:  Central Banks, dynamic stochastic general equilibrium

Optimal central bank transparency

Carin van der Cruijsen, Sylvester Eijffinger, Lex Hoogduin 12 August 2008

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In recent decades, both monetary theory and monetary policymakers have come to emphasise the importance of expectations for the transmission of monetary policy.1 The New Keynesian model – more particularly the Phillips curve embedded in it – explains current inflation by the output gap and expected future inflation. Monetary policy can directly only influence a very short term interest rate and its impact on the current output gap is relatively limited. Thus, in the New Keynesian model, expectations matter for monetary policy.

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Topics:  Monetary policy

Tags:  transparency, Central Banks

Central bank independence and transparency: Not just cheap talk (Part 2)

Christopher Crowe, Ellen E. Meade 31 July 2008

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Using the updated measures of central bank independence and transparency that we detailed in our first column, we sought to investigate what effects these aspects of central bank governance might have on economic performance.1

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Topics:  Monetary policy

Tags:  transparency, Central Banks, independence

Central bank independence and transparency: Not just cheap talk (Part 1)

Christopher Crowe, Ellen E. Meade 27 July 2008

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In recent days, French President Nicolas Sarkozy has called for changes that would increase the accountability of the European Central Bank, including the publication of meeting minutes for its Governing Council.1 This and other types of accountability measures are generally seen as the counterpart to high levels of central bank independence.

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Topics:  EU institutions

Tags:  ECB, transparency, Central Banks

Central banks, the financial crisis and the threat of inflation

Willem Buiter interviewed by Romesh Vaitilingam,

Date Published

Fri, 07/18/2008

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Topics

Financial markets Monetary policy
Tags
inflation, Central Banks, subprime crisis

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The dangers of increased transparency in monetary policymaking

Ellen E. Meade, David Stasavage 26 June 2008

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Since the mid-1990s, there has been a trend towards greater transparency in economic policymaking – particularly with respect to monetary policy – and a number of central banks, including Sweden’s Riksbank and Britain’s Bank of England, have adopted a very transparent monetary policy regime known as inflation targeting. The United States does not subscribe to inflation targeting, but the Fed has also become much more transparent about its policymaking and operations over the past 15 years.

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Topics:  Institutions and economics Monetary policy

Tags:  transparency, Central Banks, policymaking

Central banks’ function to maintain financial stability: An uncompleted task

Charles A.E. Goodhart 24 June 2008

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The events of the last year have reminded us all that a central bank does not just have one responsibility, that of achieving price stability. It is indeed its first core purpose (CP1); but as the sole institution that can create cash, and hence bank reserve balances, a central bank has a responsibility for acting as the lender of last resort and maintaining financial stability. This is its second core purpose (CP2).

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Topics:  Financial markets Monetary policy

Tags:  interest rates, Central Banks, price stability, financial stability

Why central banking is no longer boring

Guido Tabellini 23 June 2008

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Until a year ago, central bankers could boast with satisfaction that monetary policy had become boring. A widely shared “best practice” was followed by almost all central banks. Any controversies concerned technical nuances that were really only relevant to professionals in the field. Then came the credit crisis – and all certainties went out the window. Now new dilemmas are emerging, and many central banks have embarked on different routes. Within a few years, we will know who was right and who wasn’t.

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Topics:  Monetary policy

Tags:  ECB, inflation, Central Banks, Federal Reserve, inflation targetting

Can central banks talk too much?

Camille Cornand, Frank Heinemann 27 May 2008

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While practitioners in central banks and international institutions agree on the desirability of informative announcements and promote greater transparency on the ground that any information is valuable to markets, recent academic literature argues that public announcements may destabilise markets by generating some overreaction.

Financial markets and macroeconomic environments are often characterised by positive externalities – for example, during speculative episodes, it is rewarding for a trader to attack a currency or run a bank if others decide to do so.

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Topics:  Financial markets Monetary policy

Tags:  transparency, Central Banks, publicity

Can Central Banks Go Broke?

Willem Buiter,

Date Published

Sat, 05/17/2008

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Tags
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