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Poole in the New Keynesian Model

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  • Collard, Fabrice
  • Dellas, Harris

Abstract

We study the properties of alternative central bank targeting procedures within the standard New Keynesian model. We find that Poole’s famous insights concerning the output stabilization properties of money and interest-rate targeting obtain when intertemporal substitution is low, and that output volatility rankings do not induce similar welfare rankings. Unlike the popular presumption, money targeting always fares better for money demand shocks. For fiscal shocks, money targeting does better for low and worse for high degree of intertemporal substitution. The opposite pattern obtains for supply shocks.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4083.

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Date of creation: Oct 2003
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Handle: RePEc:cpr:ceprdp:4083

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Keywords: macroeconomic volatility; poole; targeting; welfare;

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