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Explicit instrument versus targeting rules in the backward-looking model

Author

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  • Froyen, Richard T.
  • Guender, Alfred V.

Abstract

In the backward-looking model, an explicit instrument rule is almost as efficient as a target rule. An explicit instrument rule leads to a more stable real rate of interest and hence an output stabilization bias compared to the target rule.

Suggested Citation

  • Froyen, Richard T. & Guender, Alfred V., 2010. "Explicit instrument versus targeting rules in the backward-looking model," Economics Letters, Elsevier, vol. 106(1), pages 64-66, January.
    • Handle: RePEc:eee:ecolet:v:106:y:2010:i:1:p:64-66
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    References listed on IDEAS

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    1. Bennett T. McCallum & Edward Nelson, 2005. "Targeting versus instrument rules for monetary policy," Review, Federal Reserve Bank of St. Louis, vol. 87(Sep), pages 597-612.
    2. Lars E. O. Svensson, 2003. "What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 426-477, June.
    3. Bennett T. McCallum & Edward Nelson, 2005. "Targeting versus instrument rules for monetary policy," Review, Federal Reserve Bank of St. Louis, vol. 87(Sep), pages 597-612.
    4. Laurence Ball, 1999. "Efficient Rules for Monetary Policy," International Finance, Wiley Blackwell, vol. 2(1), pages 63-83, April.
    5. Lars E. O. Svensson, 2005. "Targeting versus instrument rules for monetary policy: what is wrong with McCallum and Nelson?," Review, Federal Reserve Bank of St. Louis, vol. 87(Sep), pages 613-626.
    6. Richard T. Froyen & Alfred V. Guender, 2007. "Optimal Monetary Policy under Uncertainty," Books, Edward Elgar Publishing, number 12510.
    7. Bennett T. McCallum & Edward Nelson, 2005. "Commentary on \\"targeting versus instrument rules for monetary policy: what is wrong with McCallum and Nelson?\\"," Review, Federal Reserve Bank of St. Louis, vol. 87(Sep), pages 627-632.
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