Volume 4, Number 4 December 2008 oue4 ubr4December 2008 Volume 4, Number 4 BANKING OF CENTRAL JOURNAL INTERNATIONAL

INTERNATIONAL JOURNAL OF CENTRAL BANKING

Modeling Short-Term Spreads in the Money Market Nuno Cassola and Claudio Morana under Uncertainty about the Nature of Asset-Price Shocks David L. Haugh Inflation: Do Expectations Trump the Gap? Jeremy M. Piger and Robert H. Rasche Leadership in Groups: A Monetary Policy Experiment Alan S. Blinder and John Morgan Inflation Targeting and Target Instability Robert J. Tetlow Policy Rate Guidance and Financial Market Functioning Richhild Moessner and William R. Nelson International Journal of Central Banking

Volume 4, Number 4 December 2008

Modeling Short-Term Interest Rate Spreads in the 1 Euro Money Market Nuno Cassola and Claudio Morana

Monetary Policy under Uncertainty about the Nature 39 of Asset-Price Shocks David L. Haugh

Inflation: Do Expectations Trump the Gap? 85 Jeremy M. Piger and Robert H. Rasche

Leadership in Groups: A Monetary Policy Experiment 117 Alan S. Blinder and John Morgan

Inflation Targeting and Target Instability 151 Robert J. Tetlow

Central Bank Policy Rate Guidance and Financial 193 Market Functioning Richhild Moessner and William R. Nelson

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ISSN: 1815-4654 International Journal of Central Banking

Board of Directors

Chairman Charles Bean,

Board Members Abdulrahman Al-Hamidy, Saudi Arabian Ana Leal, Bank of Portugal Monetary Agency Mario Mesquita, Central Bank of Brazil Jan Marc Berk, The Nederlandsche Bank Vyacheslav Morgunov, Central Bank of Claudio Borio, Bank for International Settlements Russian Federation Mohammed Tahar Bouhouche, Bank of Algeria John Murray, Bank of Canada Malcolm Edey, Reserve Bank of Australia Tom O’Connell, Central Khor Hoe Ee, Monetary Authority of Singapore Fabio Panetta, Manuel Ramos Francia, Bank of Mexico Christian Pfister, Hans Genberg, Hong Kong Monetary Authority Jan Qvigstad, Norges Bank Heinz Herrmann, Ivan Ribnikar, Tor Jacobson, Arnor Sighvatsson, He Jianxiong, People’s Bank of China Jan Smets, Juan F. Jimeno, Wataru Takahashi, Bank of Japan Ali Hakan Kara, Central Bank of Turkey Juha Tarkka, Ulrich Kohli, Swiss National Bank George Tavlas, Donald Kohn, Federal Reserve Board Dobieslaw Tymoczko,

Editorial Board

Managing Editor Frank Smets European Central Bank

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

Andrew Levin Carl E. Walsh Federal Reserve Board University of California

Associate Editors

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