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How Different are Money Supply Rules from Taylor Rules?

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Author Info

  • Patrick Minford

    (Cardiff Business School and Centre for Economic Policy Research (CEPR), 90-98 Goswell Road, London EC 1V7RR, United Kingdom)

  • Francesco Perugini

    (Cardiff Business School, Column Drive, Cardiff CF10 3EU, United Kingdom)

  • Naveen Srinivasan

    (Cardiff Business School, Column Drive, Cardiff CF10 3EU, United Kingdom)

Abstract

In this paper we show that a money supply rule (a Taylor-type rule) and a Taylor rule produce substantial stochastic differences in the behavior of the economy. Hence it remains an open question whether one or other type of central bank behavior does a better job in welfare terms-contrary to a recent study (Clarida et al.1999) which called Taylor rules the ‘modern science of monetary policy’, thereby suggesting that other rules are essentially inferior. We show with illustrative calibration that the rules may produce very different welfare outcomes.

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Bibliographic Info

Article provided by Department of Economics, Delhi School of Economics in its journal Indian Economic Review.

Volume (Year): 38 (2003)
Issue (Month): 2 (July)
Pages: 157-166

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Handle: RePEc:dse:indecr:v:38:y:2003:i:2:p:157-166

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Related research

Keywords: Monetary Policy Rules; Stochastic Behavior;

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Cited by:
  1. Dai, Meixing, 2009. "On the role of money growth targeting under inflation targeting regime," MPRA Paper 13780, University Library of Munich, Germany.
  2. Patrick Minford, 2008. "Commentary on "Economic projections and rules of thumb for monetary policy "," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 331-338.
  3. Minford, Patrick, 2008. "Commentary on Economic Projections and Rules of Thumb for Monetary Policy (by Athanasios Orphanides and Volker Wieland)," Cardiff Economics Working Papers E2008/16, Cardiff University, Cardiff Business School, Economics Section.

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