Simple Monetary Policy Rules Under Model Uncertainty

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Simple Monetary Policy Rules Under Model Uncertainty

Author Info

Peter Isard
Douglas Laxton
Ann-Charlotte Eliasson

Additional information is available for the following registered author(s):

Douglas Michael Laxton

Abstract

Using stochastic simulations and stability analysis, the paper compares how different monetary policy rules perform in a moderately nonlinear model with a time-varying NAIRU. Rules that perform well in linear models but implicitly embody backward-looking measures of real interest rates (such as conventional Taylor rules) or substantial interest rate smoothing perform very poorly in models with moderate nonlinearities, particularly when policymakers tend to make serially-correlated errors in estimating the NAIRU. This challenges the practice of evaluating policy rules within linear models, in which the consequences of responding myopically to significant overheating are extremely unrealistic. Copyright Kluwer Academic Publishers 1999

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Publisher Info
Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 6 (1999)
Issue (Month): 4 (November)
Pages: 537-577
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:itaxpf:v:6:y:1999:i:4:p:537-577

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Paper
- Peter Isard & Douglas Laxton & Ann-Charlotte Eliasson, 1999. "Simple Monetary Policy Rules Under Model Uncertainty," Computing in Economics and Finance 1999 841, Society for Computational Economics.
- Peter Isard & Douglas Laxton & Ann-Charlotte Eliasson, 1999. "Simple Monetary Policy Rules Under Model Uncertainty," IMF Working Papers 99/75, International Monetary Fund.

Cited by:
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Bennett T. McCallum, 2001. "Monetary Policy Analysis in Models Without Money," NBER Working Papers 8174, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Bennett T. McCallum, 2001. "Monetary policy analysis in models without money," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 145-164. [Downloadable!]
Peter Isard & Douglas Laxton & Ann-Charlotte Eliasson, 2001. "Inflation Targeting with NAIRU Uncertainty and Endogenous Policy Credibility," IMF Working Papers 01/7, International Monetary Fund. [Downloadable!]
Other versions:
- Isard, Peter & Laxton, Douglas & Eliasson, Ann-Charlotte, 2001. "Inflation targeting with NAIRU uncertainty and endogenous policy credibility," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 115-148, January. [Downloadable!] (restricted)
Katerina Smidkova, 2003. "Targeting Inflation under Uncertainty: Policy Makers’ Perspective," Macroeconomics 0304003, EconWPA. [Downloadable!]
Other versions:
- Katerina Smidkova, 2003. "Targeting inflation under uncertainty: Policy makers' perspective," Research and Policy Notes 2003/02, Czech National Bank, Research Department. [Downloadable!]
Bennett McCallum, 2001. "Inflation targeting and the liquidity trap," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. [Downloadable!]
Other versions:
- Bennett T. McCallum, 2001. "Inflation Targeting and the Liquidity Trap," NBER Working Papers 8225, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Bennett T. McCallum, 2001. "Inflation Targeting and the Liquidity Trap," Working Papers Central Bank of Chile 112, Central Bank of Chile. [Downloadable!]
Bennett T. McCallum, 2002. "Consistent Expectations, Rational Expectations, Multiple-Solution Indeterminacies, and Least-Squares Learnability," NBER Working Papers 9218, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Victor Gaiduch & Benjamin Hunt, 2000. "Inflation targeting under potential output uncertainty," Reserve Bank of New Zealand Discussion Paper Series DP2000/08, Reserve Bank of New Zealand. [Downloadable!]
Felipe Morandé & Mauricio Tejada, 2008. "Sources of Uncertainty for Conducting Monetary Policy in Chile," Working Papers Central Bank of Chile 492, Central Bank of Chile. [Downloadable!]
Adam Cagliarini & Guy Debelle, 2000. "The Effect of Uncertainty on Monetary Policy: How Good are the Brakes?," Working Papers Central Bank of Chile 74, Central Bank of Chile. [Downloadable!]
Other versions:
- Guy Debelle & Adam Cagliarini, 2000. "The Effect of Uncertainty on Monetary Policy: How Good are the Brakes?," RBA Research Discussion Papers rdp2000-07, Reserve Bank of Australia. [Downloadable!]
Lawrence J. Christiano & Christopher J. Gust, 1999. "Taylor Rules in a Limited Participation Model," NBER Working Papers 7017, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Lawrence J. Christiano & Christopher J. Gust, 1999. "Taylor rules in a limited participation model," Working Paper 9902, Federal Reserve Bank of Cleveland. [Downloadable!]
- Lawrence J. Christiano & Christopher J. Gust, 1999. "Taylor rules in a limited participation model," Working Paper Series WP-99-3, Federal Reserve Bank of Chicago.
Bennett T. McCallum, 1999. "Analysis of the Monetary Transmission Mechanism: Methodological Issues," NBER Working Papers 7395, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
John C. Williams & Andrew T. Levin & Volker Wieland, 2001. "The performance of forecast-based monetary policy rules under model uncertainty," Working Paper Series 068, European Central Bank. [Downloadable!]
Other versions:
- Andrew Levin & John C. Williams, 2000. "The Performance of Forecast-Based Monetary Policy Rules under Model Uncertainty," Econometric Society World Congress 2000 Contributed Papers 1781, Econometric Society. [Downloadable!]
- Andrew Levin & Volker Wieland & John C. Williams, 2001. "The performance of forecast-based monetary policy rules under model uncertainty," Finance and Economics Discussion Series 2001-39, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
- Andrew Levin & Volker Wieland & John Williams, 2000. "The Performance Of Forecast-Based Monetary Policy Rules Under Model Uncertainty," Computing in Economics and Finance 2000 203, Society for Computational Economics.
- Andrew Levin & Volker Wieland & John C. Williams, 2003. "The Performance of Forecast-Based Monetary Policy Rules under Model Uncertainty," CFS Working Paper Series 2003/06, Center for Financial Studies. [Downloadable!]
- Andrew Levin & Volker Wieland & John C. Williams, 2003. "The Performance of Forecast-Based Monetary Policy Rules Under Model Uncertainty," American Economic Review, American Economic Association, vol. 93(3), pages 622-645, June. [Downloadable!]
Jamie Armour & Ben Fung & Dinah Maclean, 2002. "Taylor Rules in the Quarterly Projection Model," Working Papers 02-1, Bank of Canada. [Downloadable!]
Páez-Farrell, Juan, 2007. "Monetary Policy Rules in Theory and in Practice: Evidence from the UK and the US," Cardiff Economics Working Papers E2007/13, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
Other versions:
- Juan Paez-Farrell, 2009. "Monetary policy rules in theory and in practice: evidence from the UK and the US," Applied Economics, Taylor and Francis Journals, vol. 41(16), pages 2037-2046. [Downloadable!] (restricted)
Nicoletta Batini & Anthony Yates, . "Hybrid inflation and price level targeting," Bank of England working papers 135, Bank of England. [Downloadable!]
Other versions:
- Batini, Nicoletta & Yates, Anthony, 2003. " Hybrid Inflation and Price-Level Targeting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(3), pages 283-300, June.
Alina Carare & Robert Tchaidze, 2005. "The Use and Abuse of Taylor Rules: How Precisely Can We Estimate Them?," IMF Working Papers 05/148, International Monetary Fund. [Downloadable!]
Other versions:
- Robert Tchaidze & Alina Carare, 2004. "The Use and Abuse of Taylor Rules: How precisely can we estimate them?," Econometric Society 2004 Latin American Meetings 132, Econometric Society. [Downloadable!]
L.J. Christiano & C.J. Gust, 1999. "Taylor Rules in a Limited Participation Model," DNB Staff Reports (discontinued) 33, Netherlands Central Bank. [Downloadable!]

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