Essays in monetary economics and monetary policy

The conduct of monetary policy is the common theme of the work in this thesis: the first two chapters examine issues related to the fundamental objectives of monetary policy while the third chapter contributes to the body of knowledge regarding the practical implementation of monetary policy.; Over the last decade, many central banks have begun pursuing policies aimed at keeping inflation substantially lower than its average realized rate during the 1970s and the 1980s. Academic research studying the welfare impact of such decreases in the targeted rate of inflation have most often concentrated on comparative static experiments; such experiments do not take into account the transition that occurs from the high inflation environment to the new, low inflation one. The first chapter of this thesis explores the extent to which accounting for this transition reduces the computed welfare benefits of lower inflation. It uses several alternative specifications of a standard, general equilibrium, monetary model to assess the issue. It finds that the computed welfare benefits can be significantly reduced by accounting for the transition, particularly if the credibility of the central bank is imperfect and must be established progressively.; The second chapter studies one particular aspect of another fundamental choice a country may have to make concerning its monetary policy: whether to maintain a separate, domestic monetary policy or to form a monetary union with a neighboring country. The chapter computes the welfare benefits that result from the ability of the domestic monetary policy to react independently to shocks affecting the domestic economy. It finds that these welfare benefits are very low and arise mostly as a consequence of the automatic adjustment that flexible nominal exchange rates imply.; Implementing a successful, inflation-targeting monetary policy requires policy makers to identify and react to strong inflationary pressures before they materialize into higher inflation. Inflation expectations can give reliable indications of such inflationary pressures but are themselves difficult to identify. The third chapter of the thesis examines whether data from futures and spot commodity markets can help in the identification of market participants' expectations of future inflation. The chapter uses a flexible econometric procedure with strong theoretical underpinnings to conduct the analysis and finds that commodity markets contain significant information about the inflation expectations present in financial markets.