Simple Monetary Policy Rules Under Model Uncertainty
AbstractUsing 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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Bibliographic InfoArticle provided by Springer in its journal International Tax and Public Finance.
Volume (Year): 6 (1999)
Issue (Month): 4 (November)
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Web page: http://www.springerlink.com/link.asp?id=102915
monetary policy rules; NAIRU uncertainty; macroeconomic models;
Other versions of this item:
- 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.
- Ann-Charlotte Eliasson & Peter Isard & Douglas Laxton, 1999. "Simple Monetary Policy Rules Under Model Uncertainty," IMF Working Papers 99/75, International Monetary Fund.
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