Optimal Monetary Policy
AbstractIn this article we propose a policy framework for inflation targeting that contains elements of both optimal and simple rules. We use a simple feedback rule for the interest rate to look after monetary policy in the long run whilst using optimal control in the short run to determine appropriate responses to shocks. The composite policy is capable of substantial welfare improvements over using a simple rule alone whilst maintaining tractability. We see the use of such a framework together with a fully specified model as a feasible approach to practical policy design.
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Bibliographic InfoArticle provided by National Institute of Economic and Social Research in its journal National Institute Economic Review.
Volume (Year): 164 (1998)
Issue (Month): 1 (April)
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- Tomás Castagnino & Laura D´Amato, 2008. "Regime Dependence, Common Shocks and the Inflation-Relative Price Variability Relation," BCRA Working Paper Series 200838, Central Bank of Argentina, Economic Research Department.
- Laura D´Amato & Lorena Garegnani, 2009. "Studying the Short-Run Dynamics of Inflation: Estimating a Hybrid New-Keynesian Phillips Curve for Argentina (1993-2007)," BCRA Working Paper Series 200940, Central Bank of Argentina, Economic Research Department.
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- Sergio A. Lago Alves, 2012. "Optimal Policy When the Inflation Target is not Optimal," Working Papers Series 271, Central Bank of Brazil, Research Department.
- Tomás Castagnino & Laura D’Amato, 2008. "Regime and Underlying Inflation Dynamics: ¿Generalized Comovement or Relative Price Adjustment?," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(52), pages 87-120, October -.
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