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Monetary Regimes: Is There a Trade-Off Between Consumption and Employment Variability?

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  • Matthews, Kent
  • Meenagh, David
  • Minford, Patrick
  • Webb, Bruce

Abstract

Macro models generally assume away heterogeneous welfare in assessing policies. We investigate here within two aggregative models - one with a representative agent, the other a long-used forecasting model of the UK - whether allowing for differences in welfare functions (specifically between those in continuous employment and those with frequent unemployment spells) alters the rankings of monetary policies. We find that it does but that a set of policies (money supply targeting implemented by money supply control) can be found that are robust in the sense of avoiding very poor outcomes for either of the two groups.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5609.

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Date of creation: Apr 2006
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Handle: RePEc:cpr:ceprdp:5609

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Keywords: heterogenous welfare; interest rate setting; money supply rules; price level targeting; robustness;

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  1. Miguel Casares, 2004. "Price setting and the steady-state effects of inflation," Spanish Economic Review, Springer, vol. 6(4), pages 267-289, December.
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  14. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
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