Supply Shocks and Optimal Monetary Policy
AbstractThis paper demonstrates that if current shocks are observed instantaneously, output can be stabilized perfectly for completely general supply disturbances, using simple monetary rules based only on: (1) the current shock; (2) the previous forecast of the current shock; and (3) the forecast for just one period ahead. The optimal rule can be expressed in an infinite number of ways and various alternatives are considered. With optimal wage indexation, the monetary rule is even simpler. If current shocks are not observed instantaneously, but are inferred from other signals, the optimal rules are of the same form, with the current perceived disturbance replacing the actual. Copyright 1987 by Royal Economic Society.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 39 (1987)
Issue (Month): 1 (March)
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- Juan Carlos Castañeda & Carlos Eduardo Castillo, 2005. "Supply Shocks in the Transition Towards an Inflation Targeting Reform: an Empirical Evidence for Guatemala," Working Papers Central Bank of Chile 354, Central Bank of Chile.
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