Modeling central bank behavior: What have we learned?

Within the literature on monetary and fiscal policy there exists a wide range of results on the role and effects of policy, both domestically and internationally. This article focuses on various inadequacies associated with the modeling of central bank behavior as an important source of the disparities. The role of policy procedures and regulations in influencing causal relationships and the dynamic adjustment of the financial system to disturbances is highlighted. At the practical level, the evolution of monetary policy in the United States is reviewed and compared to policy procedures in other major countries, with special emphasis on the implications for empirical studies. Finally, the various ramifications for contemporary policy analysis within the across interdependent nations are explored with an eye towards enhancing the reliability, robustness, and predective power of our models.