The Science and Practice of Monetary Policy Today The Deutsche Bank
This book presents important aspects of the New-Keynesian theory of monetary policy and its implications for the practical decision-making of central bankers today. Bridging the theory and practice of monetary policy, it provides an exposition on the key
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The Science and Practice of Monetary Policy Today
Volker Wieland
Editor
The Science and Practice of Monetary Policy Today The Deutsche Bank Prize in Financial Economics 2007
Editor Prof. Dr. Volker Wieland Center for Financial Studies House of Finance Grüneburgplatz 1 60323 Frankfurt am Main Germany [email protected] and Goethe University Frankfurt Department of Economics and Business Administration Grüneburgplatz 1 60323 Frankfurt am Main [email protected]
ISBN 978-3-642-02952-3 DOI 10.1007/978-3-642-02953-0 Springer Heidelberg Dordrecht London New York
e-ISBN 978-3-642-02953-0
Library of Congress Control Number: 2009940799 © Springer-Verlag Berlin Heidelberg 2010 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Cover design: WMXDesign GmbH, Heidelberg, Germany Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)
Editor’s For ewor d
This book presents important aspects of the New-Keynesian theory of monetary policy and its implications for the practical decision making of central bankers today. It brings together several new research contributions that were presented at the scientific symposium on the occasion of the award of the Deutsche Bank Prize in Financial Economics 2007 to Professor Michael Woodford of Columbia University. Woodford received this prize according to the jury in recognition of his fundamental contributions to the theory and practical analysis of monetary policy. The prize jury included Günter Franke, Michael Haliassos, Otmar Issing, Jan Krahnen, Patrick Lane, Lucrezia Reichlin, Reinhardt Schmidt, Lars Svensson, Norbert Walter and Volker Wieland. The first part on “The New-Keynesian Approach to Understanding the Economy” contains two chapters written by Bennett McCallum and Jordi Galí, respectively. McCallum provides an exposition of key elements of the New-Keynesian approach to monetary policy analysis and an appreciation of Woodford’s contributions. Galí further develops several key lessons of this approach and points out important new directions for further research.
The second part on “The New-Keynesian Approach in Forecasting and Monetary Policy Design” contains three ch
