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Cross-checking optimal monetary policy with information from the Taylor rule

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  • Tillmann, Peter

Abstract

This paper shows that monetary policy should be delegated to a central bank that cross-checks optimal policy with information from the Taylor rule. Placing some weight on deviations from a Taylor rule reduces the stabilization bias of discretionary monetary policy.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 117 (2012)
Issue (Month): 1 ()
Pages: 204-207

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Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:204-207

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Optimal monetary policy; Stabilization bias; Monetary policy delegation; Robustness; Taylor rule;

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References

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  1. Pier Francesco Asso & George A. Kahn & Robert Leeson, 2010. "The Taylor rule and the practice of central banking," Research Working Paper RWP 10-05, Federal Reserve Bank of Kansas City.
  2. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  3. Chowdhury, Ibrahim & Hoffmann, Mathias & Schabert, Andreas, 2006. "Inflation dynamics and the cost channel of monetary transmission," European Economic Review, Elsevier, vol. 50(4), pages 995-1016, May.
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  5. Dennis, Richard, 2010. "How robustness can lower the cost of discretion," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 653-667, September.
  6. Christian Jensen & Bennett C. McCallum, 2002. "The Non-Optimality of Proposed Monetary Policy Rules Under Timeless-Perspective Commitment," NBER Working Papers 8882, National Bureau of Economic Research, Inc.
  7. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, December.
  8. Alberto F. Alesina & Andrea Stella, 2010. "The Politics of Monetary Policy," NBER Working Papers 15856, National Bureau of Economic Research, Inc.
  9. Juha Kilponen & Kai Leitemo, 2008. "Model Uncertainty and Delegation: A Case for Friedman's "k"-Percent Money Growth Rule?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 547-556, 03.
  10. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
  11. RIBONI, Alessandro & RUGE-MURCIA, Francisco J., 2008. "Monetary Policy by Committee:Consensus, Chairman Dominance or Simple Majority?," Cahiers de recherche 2008-02, Universite de Montreal, Departement de sciences economiques.
  12. Ravenna, Federico & Walsh, Carl E., 2006. "Optimal monetary policy with the cost channel," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 199-216, March.
  13. Richard Dennis & Ulf Soderstrom, 2002. "How important is precommitment for monetary policy?," Working Paper Series 2002-10, Federal Reserve Bank of San Francisco.
  14. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May.
  15. Carl Walsh, 2001. "Speed Limit Policies: The Output Gap and Optimal Monetary Policy," CESifo Working Paper Series 609, CESifo Group Munich.
  16. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  17. Paez-Farrell, Juan, 2012. "Should central bankers discount the future? A note," Economics Letters, Elsevier, vol. 114(1), pages 20-22.
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