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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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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

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Cited by:
  1. Avichai Snir & Daniel Levy, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," Working Paper Series 17_11, Rimini Centre for Economic Analysis.
  2. N. Gregory Mankiw & Ricardo Reis, 2010. "Imperfect Information and Aggregate Supply," Discussion Papers 0910-11, Columbia University, Department of Economics.
  3. Carrillo Julio A., 2010. "How Well Does Sticky Information Explain Inflation and Output Inertia?," Research Memoranda 018, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
  4. Jerger, Jürgen & Röhe, Oke, 2009. "Testing for Parameter Stability in DSGE Models. The Cases of France, Germany and Spain," University of Regensburg Working Papers in Business, Economics and Management Information Systems 453, University of Regensburg, Department of Economics.
  5. J. A. Carrillo, 2011. "How Well Does Sticky Information Explain the Dynamics of Inflation, Output, and Real Wages?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/724, Ghent University, Faculty of Economics and Business Administration.

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