These three essays are concerned with macroeconomic and monetary policy issues relating to the housing market and inflation-targeting. The essays can be characterized as applied macroeconomics in nature as they use insights from theory to construct macroeconomic models, which are then taken to the data.

The first chapter in this study utilizes microeconomic evidence that nominal loss aversion plays a role in the pricing of housing services and explores the extent to which this phenomenon in the housing sector affects the macroeconomy as a whole. A two-sector Dynamic Stochastic General Equilibrium model of housing and consumption goods with downward nominal price rigidity in the housing sector is constructed to examine how asymmetries in the nominal pricing of housing services affects monetary policy in stabilizing the economy in response to shocks. A calibration exercise is also performed to gain insight to what degree pricing dynamics in the housing sector are driven by the tendency of sellers to be nominally loss averse.

The second chapter explores the disparities in the success rate in hitting an explicit inflation target among OECD and Emerging Market inflation targeters. The study proposes a framework to try to circumvent the “good luck”/“good policy” forces as drivers of better inflation-targeting outcomes by estimating a measure of central bank credibility in targeting regimes. Two main findings are that Emerging Market targeting banks are less successful than their OECD counterparts in establishing credibility in targeting inflation and that credible regimes last on the order of five to ten times as long as the relatively short-lived incredible regimes for the two groups of targeting countries.

The third chapter, co-authored with Scott Schuh of the Federal Reserve Bank of Boston, takes a preliminary empirical step to model inflation outcomes for inflation band-targeting countries which allows us to isolate the empirical determinants of inflation escaping from the targeted band. We also use our framework to determine whether US inflation is consistent with inflation under an explicit targeting regime. Our model generates the result that US inflation during the last decade is well predicted by a model of inflation-targeting countries.