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Avoiding significant monetary policy mistakes

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  • Preston J. Miller
  • Gary H. Stern
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    Abstract

    We deduce properties of optimal monetary policies based on modern theory and standard empirical findings. In light of this analysis, we examine FOMC policy procedures and conclude that they put too much emphasis on short-term economic stabilization and too little emphasis on longer-term price stability. We propose a form of inflation targeting to address this problem.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

    Volume (Year): (2004)
    Issue (Month): Dec ()
    Pages: 2-9

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    Handle: RePEc:fip:fedmqr:y:2004:i:dec:p:2-9:n:v.28no.2

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    Related research

    Keywords: Monetary policy;

    References

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    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.:
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    1. Eric M. Leeper & Jennifer E. Roush, 2003. "Putting 'M' back in Monetary Policy," NBER Working Papers 9552, National Bureau of Economic Research, Inc.
    2. Andrew Atkeson & Patrick J. Kehoe, 2004. "Deflation and Depression: Is There an Empirical Link?," American Economic Review, American Economic Association, vol. 94(2), pages 99-103, May.
    3. Miller, Preston J., 1993. "Optimal income tax in a monetary economy," Journal of Economic Dynamics and Control, Elsevier, vol. 17(3), pages 443-465, May.
    4. John C. Williams, 1999. "Simple rules for monetary policy," Finance and Economics Discussion Series 1999-12, Board of Governors of the Federal Reserve System (U.S.).
    5. Ben S. Bernanke, 2003. "Friedman's monetary framework: some lessons," Proceedings, Federal Reserve Bank of Dallas, issue Oct, pages 207-214.
    6. Satyajit Chatterjee & Dean Corbae, 2003. "On the welfare gains of eliminating a small likelihood of economic crises: A case for stabilization policies?," Working Papers 03-20, Federal Reserve Bank of Philadelphia.
    7. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22.
    8. Kiley Michael T., 2003. "An Analytical Approach to the Welfare Cost of Business Cycles and the Benefit from Activist Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-26, March.
    9. Jane Ihrig & Jaime Marquez, 2003. "An empirical analysis of inflation in OECD countries," International Finance Discussion Papers 765, Board of Governors of the Federal Reserve System (U.S.).
    10. Lars E. O. Svensson, 2003. "Monetary Policy and Real Stabilization," NBER Working Papers 9486, National Bureau of Economic Research, Inc.
    11. George T. McCandless, Jr. & Warren E. Weber, 1995. "Some monetary facts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
    12. S. Rao Aiyagari, 1988. "Economic fluctuations without shocks to fundamentals; or, does the stock market dance to its own music?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 8-24.
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    Cited by:
    1. William Whitesell, 2005. "An inflation goal with multiple reference measures," Finance and Economics Discussion Series 2005-62, Board of Governors of the Federal Reserve System (U.S.).

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