This chapter reviews the theory of optimal monetary stabilization policy in New Keynesian
models, with particular emphasis on developments since the treatment of this topic in …

The basic (representative-household) New Keynesian model of the monetary transmission
mechanism is extended to allow for a spread between the interest rate available to savers …

Psychological factors, market sentiments and less‐than‐fully‐rational shifts in beliefs are
widely believed to play a role in the economy. Yet, they are rarely considered in …

The value of communication is analyzed in a model in which agents' expectations need not
be consistent with central bank policy. Without communication, the Taylor principle is not …

This paper reevaluates the basic prescriptions of monetary policy design in the new
Keynesian paradigm through the lens of imperfect knowledge. We show that while the basic …

Monetary policy is analyzed in a model with a potential unanchoring of inflation
expectations. The degree of unanchoring is given by how sensitively the public's long-run …

Expectations play a central role in modern macroeconomics. Economic agents are assumed
to be dynamic optimizers whose current economic decisions are the first stage of a dynamic …

This paper compares the properties of interest-rate rules such as simple Taylor rules and
rules that respond to price-level fluctuations (called Wicksellian rules) in a basic forward …

Our study demonstrates how agents' expectations can interact dynamically with monetary
and fiscal policy at the zero lower bound. We study expectation formation near the zero …

This paper tests the ability of New Keynesian models to match the data regarding a key
channel for monetary transmission: the dynamic interactions between macroeconomic …