This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Monetary Policy, Price Stability and Output Gap Stabilization

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Gaspar, Vitor
Smets, Frank

Additional information is available for the following registered author(s):

Abstract

Using a standard New-Keynesian model, this paper examines three reasons why monetary policy should primarily focus on price stability rather than the stabilization of output around potential, even if there appears to be an exploitable trade-off between the volatility of inflation and that of the output gap. First, we discuss the well-known time-inconsistency problem associated with active output gap stabilization. Increasing the relative weight on inflation stabilization improves the equilibrium outcome. Second, we analyse some of the problems associated with the substantial uncertainty that surrounds estimates of potential output. We argue that focusing on price stability is a robust monetary policy strategy in the face of such uncertainty. Finally, we consider the case where private agents are trying to estimate the inflation generating process using an "ad hoc", but reasonable learning rule. By emphasizing a single goal the central bank facilitates the process of learning, thereby stabilizing both inflation and the output gap. Copyright 2002 by Blackwell Publishers Ltd.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.blackwell-synergy.com/servlet/useragent?func=synergy&synergyAction=showTOC&journalCode=infi&volume=5&issue=2&year=2002&part=null
File Format: text/html
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Article provided by Blackwell Publishing in its journal International Finance.

Volume (Year): 5 (2002)
Issue (Month): 2 (Summer)
Pages: 193-211
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:bla:intfin:v:5:y:2002:i:2:p:193-211

Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1367-0271

Order Information:
Web: http://www.blackwellpublishing.com/subs.asp?ref=1367-0271

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords:

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kerstin Bernoth & Andrew Hughes Hallet & John Lewis, 2008. "Did fiscal policy makers know what they were doing? Reassessing fiscal policy with real-time data," DNB Working Papers 169, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  2. Carl Walsh, 2004. "Implications of a Changing Economic Structure for the Strategy of Monetary Policy," Santa Cruz Center for International Economics, Working Paper Series 1023, Center for International Economics, UC Santa Cruz. [Downloadable!]
    Other versions:
  3. Athanasios Orphanides & John C. Williams, 2006. "Inflation Targeting Under Imperfect Knowledge," Working Papers Central Bank of Chile 398, Central Bank of Chile. [Downloadable!]
    Other versions:
  4. Athanasios Orphanides & John C. Williams, 2005. "Inflation scares and forecast-based monetary policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 498-527, April. [Downloadable!] (restricted)
    Other versions:
  5. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2006. "Monetary Policy Under Inflation Targeting: An Introduction," Working Papers Central Bank of Chile 396, Central Bank of Chile. [Downloadable!]
    Other versions:
  6. Kirdan Lees, 2003. "The stabilisation problem: the case of New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2003/08, Reserve Bank of New Zealand. [Downloadable!]
  7. Vitor Gaspar & Frank Smets, 2005. "Monetary Policy under Adaptive Learning," Computing in Economics and Finance 2005 80, Society for Computational Economics. [Downloadable!]
  8. Lars E. O. Svensson, 2003. "Monetary Policy and Real Stabilization," NBER Working Papers 9486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Vitor Gaspar & Frank Smets & David Vestin, 2006. "Adaptive learning, persistence, and optimal monetary policy," Working Paper Series 644, European Central Bank. [Downloadable!]
    Other versions:
  10. Vitor Gaspar & Frank Smets & David Vestin, 2006. "Optimal Monetary Policy under Adaptive Learning," Computing in Economics and Finance 2006 183, Society for Computational Economics. [Downloadable!]
Statistics
Access and download statistics

Did you know? No RePEc service, like IDEAS, charges for the use or the display of bibliographic data.

This page was last updated on 2009-10-25.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.