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Optimal Monetary Policy Rules in an Estimated Sticky-Information Model

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  • Ricardo Reis

Abstract

This paper uses a dynamic stochastic general equilibrium (DSGE) model with sticky information as a laboratory to study monetary policy. It characterizes the model's predictions for macro dynamics and optimal policy at prior parameters, and then uses data on five US macroeconomic series to update the parameters and provide an estimated model that can be used for policy analysis. The model answers a few policy questions. How does sticky information affect optimal monetary policy? What is the optimal interest rate rule? What is the optimal elastic price-level targeting rule? How does parameter uncertainty affect optimal policy? Are the conclusions for the Euro area different? (JEL E13, E31, E43, E52)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.2.1
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 1 (2009)
Issue (Month): 2 (July)
Pages: 1-28

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Handle: RePEc:aea:aejmac:v:1:y:2009:i:2:p:1-28

Note: DOI: 10.1257/mac.1.2.1
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  1. Dupor, Bill & Han, Jing & Tsai, Yi-Chan, 2009. "What do technology shocks tell us about the New Keynesian paradigm?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(4), pages 560-569, May.
  2. anonymous, 2009. "Monetary policy report to the Congress," Web Site, Board of Governors of the Federal Reserve System (U.S.) 46, Board of Governors of the Federal Reserve System (U.S.).
  3. Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles 3415324, Harvard University Department of Economics.
  4. Lars E.O. Svensson, 2002. "What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," Working Papers, Princeton University, Department of Economics, Center for Economic Policy Studies. 118, Princeton University, Department of Economics, Center for Economic Policy Studies..
  5. Mankiw, N. Gregory & Reis, Ricardo, 2007. "Sticky Information in General Equilibrium," Scholarly Articles 3415323, Harvard University Department of Economics.
  6. Carl Walsh, 2001. "Speed Limit Policies: The Output Gap and Optimal Monetary Policy," CESifo Working Paper Series 609, CESifo Group Munich.
  7. Alvarez, F. & Jermann, U.J., 2000. "Using Asset Prices to Measure the Cost of Business Cycles," Weiss Center Working Papers, Wharton School - Weiss Center for International Financial Research 00-1, Wharton School - Weiss Center for International Financial Research.
  8. Ben S. Bernanke & Jean Boivin & Piotr Eliasz, 2004. "Measuring the effects of monetary policy: a factor-augmented vector autoregressive (FAVAR) approach," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-03, Board of Governors of the Federal Reserve System (U.S.).
  9. William A. Branch & John Carlson & George W. Evans & Bruce McGough, 2004. "Monetary policy, endogenous inattention, and the volatility trade-off," Working Paper 0411, Federal Reserve Bank of Cleveland.
  10. anonymous, 2009. "Monetary policy report to the Congress," Web Site, Board of Governors of the Federal Reserve System (U.S.) 70, Board of Governors of the Federal Reserve System (U.S.).
  11. Robert Shimer, 2009. "Convergence in Macroeconomics: The Labor Wedge," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 1(1), pages 280-97, January.
  12. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, Econometric Society, vol. 47(5), pages 1267-86, September.
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