There is likely to be little disagreement with the observation that political interference has exacerbated the problems associated with bank insolvencies. Nevertheless, most ot the analytical attention given to bank crises has focused on technocratic mistakes (inappropriate regulatory choices), exogenous ...

The unprecedented number of costly bank failures throughout the world in the last two decades of the twentieth century has focused attention on the need to determine more appropriate ways to improve the performance of countries financial systems. Indeed, a substantial literature is already emerging ...

Since New Zealand adopted inflation targeting in 1990, a steadily growing number of industrial and emerging economies have explicitly adopted an inflation target as their nominal anchor. Eight industrial countries and thirteen emerging economies had full-fledged inflation targeting in place in early ...

Many central banks have adopted a formal inflation-targeting framework based on the belief and the theoretical predictions that an explicit and clearly communicated numerical objective for the level of inflation over a specified period would, in itself, be a strong communication device that would help ...

For decades, the exchange rate was at the center of macroeconomic policy debates in emerging markets. Many countries used the nominal exchange rate to bring down inflation, –others—mostly in Latin America—used the exchange rate to implicitly tax the export sector. Currency crises were common and usually ...

The world’s central banks have undergone dramatic changes in the past fifteen years. Increases in independence and transparency have been coupled with a shift in focus. Price stability is now the paramount objective for the vast majority of modern central bankers. Combined, these changes in central ...

The inflation targeting regime in place in Canada requires a clear understanding of the monetary policy transmission mechanism and a way to exploit knowledge of that mechanism in making policy decisions. This paper describes the Bank of Canada's current undestanding of the monetary policy transmission ...

A number of recent papers have used policy simulations from small empirical macroeconomic models to assess the efficacy of inflation targeting or, more precisely, inflation forecast targeting (Svensson, 1997a). These include Rudebush and Svensson (1999). The models used to undertake these simulations ...

Large and persistent current account deficits are frequently raised as a cause for concern for a number of reasons. Perhaps the key concern is that countries in this situation could be on a path to insolvency, building up excessive net foreign debt, raising the prospects of default or a sharp reversal ...

The conduct of monetary policy in terms of interest rate or other rules has been extensively studied in recent research. This literature gives a central role to forecasts of future inflation and output, and the question of whether monetary policy should be forward- ooking has been subject to discussion ...

In the 1990s, Southeast Asia experienced very rapid growth associated with large and persistent current account deficits. The episode lasted from 1990 to around 1996, ending with the outbreak of the Asian crisis in 1997–98. Current account deficits peaked at around 10 percent of gross domestic product ...

Dynamic stochastic general equilibrium (DSGE) models with nominal rigidities have become a popular tool for monetary policy analysis in recent years. The basic sticky price model has been enriched to include additional sources of nominal and real rigidities. These additional elements have been introduced ...

Inflation targeting has become an increasingly popular monetary policy strategy, with 21 countries (8 industrial and 13 emerging market economies) targeting inflation and others considering following in their footsteps. Numerous studies of inflation targeting in industrial countries have been conducted, ...

Our previous work develops methods to study optimal policy in Markov jump-linear-quadratic (MJLQ) models with forward-looking variables: models with conditionally linear dynamics and conditionally quadratic preferences, where the matrices in both preferences and dynamics are random (Svensson and ...

Central bank economists and academic economists conducting research on the design of monetary policy have made significant advances in recent years. This work has led to a clearer understanding of the desirable properties of interest rate rules, the role of announcements and communication, and the ...

We study the role of the balance sheet channel of monetary policy in an environment in which credit plays an important role in the funding of new capital investment. Specifically, we ask whether the transmission mechanism of monetary policy is altered in an environment in which financial intermediation ...

In the 1990s several emerging market economies such as Chile Mexico and a number of southeast Asian countries displayed episodes of peaking growth rates combined with increasing current account deficits and appreciating currencies which ended with abrupt reversions in capital flows and recessions. In ...

The current crisis has centered on borrower defaults on mortgages and the associated effects on banks’ own credit standing (and in several cases their own default), which in turn led to tightened conditions for lending to new (mortgage) borrowers. Any model that does not incorporate all or most of ...

Sixty years ago, Milton Friedman questioned the usefulness of the optimal control approach because of policymakers’ imperfect knowledge of the economy and favored instead a simple rule approach to monetary policy (1947, 1948). These are still live issues, despite the development of powerful techniques ...

Household indebtedness in Chile has received considerable attention in recent years because of the financial deepening process underway in the economy. Although various macroeconomic indicators show significant increases in the last decade, there are few tools for evaluating the real vulnerability of ...