Alternative Monetary Policy Rules for the Philippines
AbstractA theoretical basis for modifying the currently popular nominal feedback rules is provided for the conduct of monetary policy so that they react to the forecasted inflation rate, instead of to current or past actual inflation. It is shown that such a modification reduces the risk of economic instability arising from the adoption of a nominal feedback rule, and thus produces results that are closer to the optimal solution. It is furthermore shown that given rational expectations, a forward-looking rule, and a money demand function that is not completely interest-inelastic, the optimal monetary policy entails some degree of policy activism. Friedman s constant money growth rule is therefore shown to be optimal only in a special case, i.e, when the money demand function is completely insensitive to the rate of interest. Empirical simulations are conducted, which support the view that forward-looking nominal instrument rules provide better performance in terms of keeping inflation closer to the targeted level. The simulations also provide a measure of the optimal degree of activism for monetary policy, as well as of the optimal forecasting horizon.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by University of the Philippines School of Economics and Philippine Economic Society in its journal Philippine Review of Economics.
Volume (Year): 38 (2001)
Issue (Month): 2 (December)
monetary policy; inflation targeting;
Find related papers by JEL classification:
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
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.:
- Barro, Robert J, 1978.
"Unanticipated Money, Output, and the Price Level in the United States,"
Journal of Political Economy,
University of Chicago Press, vol. 86(4), pages 549-80, August.
- Barro, Robert J., 1978. "Unanticipated Money, Output, and the Price Level in the United States," Scholarly Articles 3450988, Harvard University Department of Economics.
- Michael J. Dueker & Andreas M. Fischer, 1998. "A guide to nominal feedback rules and their use for monetary policy," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 55-63.
- Fair, Ray C, 1978. "A Criticism of One Class of Macroeconomic Models with Rational Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(4), pages 411-17, November.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- George A. Kahn & Klara Parrish, 1998. "Conducting monetary policy with inflation targets," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 5-32.
- Svensson, L.E.O., 1998.
"Inflation Targeting as a Monetary Policy Rule,"
646, Stockholm - International Economic Studies.
- Svensson, Lars E O, 1998. "Inflation Targeting as a Monetary Policy Rule," CEPR Discussion Papers 1998, C.E.P.R. Discussion Papers.
- Lars E.O. Svensson, 1998. "Inflation Targeting as a Monetary Policy Rule," NBER Working Papers 6790, National Bureau of Economic Research, Inc.
- Svensson, Lars E. O., 1998. "Inflation targeting as a monetary policy rule," CFS Working Paper Series 1998/16, Center for Financial Studies (CFS).
- Svensson, Lars E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Seminar Papers 646, Stockholm University, Institute for International Economic Studies.
- Mervyn Allister King, 1998. "The Inflation Target Five Years On," FMG Special Papers sp99, Financial Markets Group.
- Sargent, Thomas J & Wallace, Neil, 1973. "The Stability of Models of Money and Growth with Perfect Foresight," Econometrica, Econometric Society, vol. 41(6), pages 1043-48, November.
- Jeffrey A. Frankel, 1995. "Financial Markets and Monetary Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061740, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Reuben T. Campos).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.