Front Cover -- Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons -- Copyright page -- Contents -- List of Contributors -- Editorial Advisory Board Members -- Introduction -- References -- Acknowledgment -- 1 Adoption of Inflation Targeting and Economic Policies Performance in Emerging Countries: A Dynamic Treatment Effe... -- 1 Introduction -- 2 Literature Review -- 3 Data and Stylized Facts -- 4 Methodology -- 4.1 The Propensity Score Matching Method -- 4.2 The Time-Varying Treatment Effect -- 4.3 Treatment, Result, and Conditioning Variables -- 4.3.1 Treatment versus Outcome Variables -- 4.3.2 The Conditioning Variables -- 5 Results -- 5.1 Intertemporal Estimation of Propensity Scores -- 5.2 The Results of Matching -- 6 Conclusion and Policy Implications -- Acknowledgments -- References -- Appendix A: Stylized Facts -- Appendix B: Variables Definitions and Sources -- Appendix C: Descriptive Statistics -- 1st Interaction -- 2nd Interaction -- 2 Careful Price Level Targeting -- 1 Introduction -- 2 The Model -- 3 Partial Commitment in Practice -- 4 Conclusion -- References -- 3 Are Price Dynamics Homogenous across Emerging Europe? Empirical Evidence from Panel Data -- 1. Introduction -- 2. Empirical Specification and Data -- 2.1. Theoretical Aspects -- 2.2. Econometric Specification -- 2.3. Variables and Data -- 3. Results and Discussion -- 3.1. Exploring Cross-Sectional Dependence and Panel Stationarity -- 3.2. Pooled Mean Group Results -- 3.3. Robustness Checks -- 4. Conclusion -- References -- 4 The Global Component of Local Inflation: Revisiting the Empirical Content of the Global Slack Hypothesis with Bay... -- 1 Introduction -- 2 A Model of Inflation Determination in the Global Economy -- 2.1 Building Blocks of the NOEM Model -- 2.1.1 Households -- 2.1.2 Firms -- 2.1.3 Monetary Policy.

2.2 The Workhorse NOEM Model -- 2.3 The Frictionless Model -- 2.4 The Deterministic Steady State -- 3 Bayesian Estimation: Bringing Data to Discipline the Theory -- 3.1 Variables and Data -- 3.1.1 Observables for Estimation -- 3.1.2 Mapping the Observable Data to Model Variables -- 3.2 Eliciting Priors -- 3.2.1 Structural Parameters -- 3.2.2 Parameters of the Shock Processes -- 4 Understanding Local Inflation in an Open-Economy Setting -- 4.1 The Global Component of Local Inflation -- 4.1.1 The World or Global Economy System -- 4.1.2 The Cross-Country Difference System -- 4.2 Empirical Findings: What Matters Most for Local Inflation? -- 4.2.1 Posterior Distributions -- 4.2.2 Bayesian IRFs -- 4.2.3 Bayesian Forecasts -- 5 Concluding Remarks -- Acknowledgments -- References -- Appendix: Proofs -- Proof of Proposition 1. -- 5 Pass-Through of Exchange Rate Shocks to Prices in the Euro Area: Evidence from Pricing Chain Model -- 1. Introduction -- 2. ERPT in EA Countries: Overview of VAR Studies -- 3. Empirical Methodology -- 4. Data Selection and Their Properties -- 5. Empirical Results -- 5.1. Responses to Exchange Rate Shocks -- 5.1.1. Impulse Responses Analysis -- 5.1.2. Factors Influencing ERPT -- 5.2. Responses to Import Price Shocks -- 5.3. Variance Decompositions -- 5.4. Testing for the Recent Decline in ERPT -- 5.5. Historical Decompositions -- 6. Concluding Remarks -- References -- Appendix A: Specification Tests -- Appendix B: Chow Tests For Multiple Time-series Systems -- Appendix C: Generalized Impulse Response For Consumer Prices -- 6 Escape Routes from Sovereign Default Risk in the Euro Area -- 1 Introduction -- 2 Theoretical Analysis -- 2.1 The Infinite Horizon Standard Model on Sovereign Default Risk -- 2.2 A Model Variant 1: Weak Macroeconomic Feedback Effects -- 2.3 Model Variant 2: Strong Macro Feedback Loops.

2.4 A Model Variant 3: Escape Routes from Sovereign Default Risk -- 3 Empirical Analysis -- 3.1 Data Description -- 4 Conclusions -- Acknowledgments -- References -- Appendix: Numerical Procedure -- 7 Actual versus Perceived Taylor Rules: How Predictable Is the European Central Bank? -- 1. Introduction -- 2. Theoretical Framework -- 3. Data and Methodology -- 4. Linear Model Estimations -- 4.1. Estimations for the Quarter and Year Ahead Horizons -- 4.2. Estimations for the One-Quarter and One-Year Horizons -- 4.3. Actual and Perceived Fitted Policy Rules -- 5. Rolling Window Estimations -- 5.1. Coefficient Estimates of Policy Inertia -- 5.2. Coefficient Estimates of Expected Inflation -- 5.3. Coefficient Estimates of Expected GDP Growth -- 6. Estimation with Time Dummies -- 7. Robustness Analysis -- 8. Conclusion -- Acknowledgment -- References -- Appendix -- Variables Used in the Estimations -- Unit Root and Stationarity Tests -- Actual and Perceived Taylor Rules with a Dummy Variable for the ECB Meetings -- Actual and Perceived Taylor Rules with Consensus Economics Forecasts -- Actual and Perceived Taylor Rules with the Economic Sentiment Indicator -- Actual and Perceived Taylor Rules with Consensus Inflation Forecasts and the Economic Sentiment Indicator -- Predicted Refi Rate Target, Investment Bank Forecasts -- Predicted Refi Rate Target, Consensus Economics Forecasts -- Rolling Window Estimates, One-Year Horizon -- Recursive Window Estimates, Year Ahead Horizon -- Recursive Window Estimates, One-Year Horizon -- 8 A Regime Switching Model for the European Central Bank -- 1. Introduction -- 2. The Model -- 3. Data and Methodology -- 4. Empirical Evidence -- 4.1. Actual Regime Switching Taylor Rule -- 4.2. Perceived Regime Switching Taylor Rule -- 4.3. Actual and Perceived Filtered Probabilities -- 4.4. Actual and Perceived Fitted Policy Rates.

5. Robustness Analysis -- 5.1. Actual and Perceived Taylor Rules with Consensus Forecasts -- 5.2. Actual and Perceived Taylor Rules with an Alternative Forecast Horizon -- 5.3. Augmented Taylor Rules -- 6. A Three Regimes Switching Model -- 7. Conclusion -- Acknowledgments -- References -- Appendix -- Variables Used in the Estimations -- Unit Root and Stationarity Tests -- Fitted Policy Rates of the Baseline Model -- Augmented Taylor Rules with a One-Year Forecast Horizon -- A Three Regimes Switching Model with a One-Year Forecast Horizon -- 9 International Trade Imbalance: The Amplification of Monetary Policy Effects through Financial Markets -- 1 Introduction -- 1.1 Global Trade Imbalance -- 1.2 Differences in the Development of Financial Markets across Countries -- 1.3 Differences in Exchange Rate and Monetary Policy across Countries -- 2 Survey of Literature -- 3 The Basic Model -- 3.1 The Basic Environment -- 3.1.1 Currency Demand -- 3.1.2 Monetary Policy -- 3.1.3 The Incompleteness of Financial Markets -- 3.2 Consumer Optimization -- 3.3 Stationary Equilibrium -- 4 Quantitative Analysis -- 4.1 The Set of Parameters -- 4.2 Benchmark Model: The Influence of Different Monetary Policy Combinations on Agent Behavior -- 4.3 The Influence of Incomplete Capital Markets on the Effects of Monetary Policy Combination Two under Equal Φ Values in B... -- 4.4 Differential Incompleteness of Capital Markets and Consumption/Investment in Two Countries -- 5 Conclusion -- References -- Appendix A: Equivalent Model -- Appendix B: Computational Procedure -- 10 Modern Monetary Rules: Any Role for Financial Targeting? -- 1 Introduction -- 2 Motivation and Literature Review -- 3 Monetary Rules under the Basic Scenario -- 3.1 The IS Curve -- 3.2 The Phillips Curve -- 3.3 The Banking Sector Curve -- 3.4 Performance of the Monetary Rules.

4 Monetary Rules in Heterogeneous Environment -- 4.1 Performance of the Monetary Rules -- 5 Conclusions and Discussion -- References -- Addendix A: Baseline Derivation -- Appendix B: The Influence of Heterogeneous Agents -- B.1 The Heterogeneous IS Curve -- B.2 The Heterogeneous Phillips Curve -- B.3 The Heterogeneous Banking Sector Curve -- Appendix C: Model Dynamics -- 11 The Taylor Rule, the Zero Lower Bound, and the Term Structure of Interest Rates -- 1 The Zero Lower Bound Issue -- 2 The Taylor Rule When the ZLB Is Not Binding -- 3 The Taylor Rule When the ZLB is Binding -- 4 Why Hasn't Inflation Accelerated? -- 5 Taylor Rule Inertia -- 6 Measuring Expected Inflation -- 7 The Output Gap Term -- 8 The Fed's Maturity Choices -- Acknowledgment -- References -- 12 A Comparison of the Fed's and ECB's Strategies during the Subprime Crisis -- 1 Introduction -- 2 The Sources of Crises: Bank Funding and Current Account Disequilibria -- 2.1 The Role of Bank Funding of International Banks -- 2.2 Current Accounts Imbalances and Sudden Stops in the Euro Area -- 3 Unconventional Conventional Policies -- 3.1 The Framework of Monetary Policy: Fed and ECB in Normal Times -- 3.2 Monetary Policies and the Rescue of the Banking Sector -- 3.2.1 Insolvency, Credit Constraint, and Liquidity Shortage -- 3.2.1.1 Insolvency and the Drop of Assets Prices -- 3.2.1.2 Capital Requirement and the Lending Constraint -- 3.2.1.3 Liquidity Shortage -- 3.2.2 The Operational Tools -- 4 Comparing Unconventional Monetary Policies -- 4.1 Quantitative Easing Policy in a Context of Zero Lower Bound in the United States -- 4.2 Quantitative Easing Policies by the ECB -- 4.3 Forward Guidance Policy -- 5 Conclusion -- References -- 13 Was Bernanke Right? Targeting Asset Prices May not be a Good Idea After All -- 1 Introduction -- 2 Households -- 3 Firms.

3.1 The "Augmented" NK Phillips Curve.