Monetary rules when economic behaviour changes
AbstractThis paper examines the implications of changes in economic behaviour for simple inflation-forecastÂbased monetary rules of the type currently used at two inflation-targeting central banks. Three types of changes in economic behaviour are considered, changes that are motivated by developments in monetary and fiscal policy in the 1990s: changes in monetary policy credibility, changes in the slope of the Phillips curve, and changes in the degree of income stabilization from automatic fiscal transfers. Analysis is conducted using stochastic simulations of a model of the Canadian economy. Two questions are posed: First, what are the implications of these types of changes in economic behaviour for the stochastic properties of the economy? Second, how are efficient inflation-forecastÂbased rules affected by these changes in behaviour? Perhaps the most interesting results are with respect to credibility. When monetary credibility increases, the central bank can attain more stable output and inflation. But increasing credibility is a double-edged sword. To reap its benefits, the central bank must, in general, adjust its reaction function. If it does not, volatility can increase. Les auteurs examinent les consÃ©quences des changements de comportement des agents Ã©conomiques pour l'application de rÃ¨gles monÃ©taires simples reposant sur la prÃ©vision de l'inflation, du genre de celles actuellement utilisÃ©es par deux banques centrales ayant Ã©tabli des cibles en matiÃ¨re d'inflation. Ils analysent trois types de changement de comportement causÃ©s par l'Ã©volution des politiques monÃ©taire et budgÃ©taire depuis le dÃ©but des annÃ©es 1990 : les changements de crÃ©dibilitÃ© de la politique monÃ©taire, les variations de la pente de la courbe de Phillips et les modifications du degrÃ© de stabilisation automatique des revenus assurÃ© par les paiements de transfert et les rentrÃ©es fiscales. L'analyse des auteurs se fonde sur l'exÃ©cution de simulations stochastiques au moyen d'u
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Bibliographic InfoArticle provided by Federal Reserve Bank of San Francisco in its journal Proceedings.
Volume (Year): (1998)
Issue (Month): Mar ()
Other versions of this item:
- Robert Amano & Don Coletti & Tiff Macklem, 1999. "Monetary Rules When Economic Behaviour Changes," Cahiers de recherche CREFE / CREFE Working Papers 81, CREFE, Université du Québec à Montréal.
- Amano, Robert & Coletti, Don & Macklem, Tiff, 1999. "Monetary Rules When Economic Behaviour Changes," Working Papers 99-8, Bank of Canada.
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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