International Journal of Central Banking

Volume 3, Number 2 June 2007

Monetary Policy Inertia or Persistent Shocks: 1 A DSGE Analysis Julio Carrillo, Patrick F`eve, and Julien Matheron

The Role of the Bias in Crafting Consensus: 39 FOMC Decision Making in the Greenspan Era Henry W. Chappell, Jr., Rob Roy McGregor, and Todd A. Vermilyea

Low Nominal Interest Rates: A Public 61 Finance Perspective Noritaka Kudoh

Inflation Convergence and Divergence within the 95 European Monetary Union Fabio Busetti, Lorenzo Forni, Andrew Harvey, and Fabrizio Venditti

Interbank Exposures: An Empirical Examination 123 of Contagion Risk in the Belgian Banking System Hans Degryse and Gr´egory Nguyen

Is Moderate-to-High Inflation Inherently Unstable? 173 Michael T. Kiley

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ISSN: 1815-4654 International Journal of Central Banking

Board of Directors

Chairman Charles Bean, Bank of England

Board Members Abdulrahman Al-Hamidy, Saudi Arabian Ana Leal, Bank of Portugal Monetary Agency Vyacheslav Morgunov, Central Bank of Jan Marc Berk, The Nederlandsche Bank Russian Federation Afonso Bevilaqua, Central Bank of Brazil John Murray, Bank of Canada Claudio Borio, Bank for International Settlements Tom O’Connell, Central Bank of Ireland Mohammed Tahar Bouhouche, Bank of Algeria Fabio Panetta, Bank of Italy Malcolm Edey, Reserve Bank of Australia Jan Qvigstad, Norges Bank Khor Hoe Ee, Monetary Authority of Singapore Lucrezia Reichlin, European Central Bank Manuel Ramos Francia, Bank of Mexico Fernando Restoy, Bank of Spain Hans Genberg, Hong Kong Monetary Authority Ivan Ribnikar, Bank of Slovenia Heinz Herrmann, Deutsche Bundesbank Arnor Sighvatsson, Central Bank of Iceland Nobuo Inaba, Bank of Japan Jan Smets, National Bank of Belgium Tor Jacobson, Sveriges Riksbank Marc-Olivier Strauss-Kahn, Bank of France He Jianxiong, People’s Bank of China Juha Tarkka, Bank of Finland Ali Hakan Kara, Central Bank of Turkey George Tavlas, Bank of Greece Ulrich Kohli, Swiss National Bank Dobieslaw Tymoczko, National Bank of Poland Donald Kohn, Federal Reserve Board

Editorial Board

Managing Editor John B. Taylor Stanford University

Co-editors Hyun Shin Kazuo Ueda Princeton University The University of Tokyo

Frank Smets Michael Woodford European Central Bank Columbia University

Associate Editors

Franklin Allen Marvin Goodfriend Carmen M. Reinhart The Wharton School of the Carnegie Mellon University University of Maryland University of Pennsylvania Charles A.E. Goodhart Rafael Repullo Michael D. Bordo London School of Economics Centro de Estudios Monetarios Rutgers University y Financieros (CEMFI) Michael B. Gordy Guy Debelle Federal Reserve Board Eli M. Remolona Reserve Bank of Australia Bank for International Luigi Guiso Settlements Michael B. Devereux Ente Luigi Einauldi University of British Columbia H´el`ene Rey Andrew G. Haldane Princeton University Douglas W. Diamond Bank of England University of Chicago Graduate Andrew K. Rose Takatoshi Ito School of Business University of California, University of Tokyo Berkeley Michael Dotsey Philip Lane Federal Reserve Bank of Klaus Schmidt-Hebbel Trinity College Dublin Philadelphia Central Bank of Chile Andrew T. Levin Douglas Gale Lars E.O. Svensson Federal Reserve Board New York University Princeton University Francesco Lippi Jordi Gal´ı J¨urgen von Hagen University of Sassari Centre de Recerca en Economia University of Bonn Internacional (CREI) Tsutomu Watanabe Hitotsubashi University