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

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Author Info
Matthews, Kent
Meenagh, David
Minford, Patrick
Webb, Bruce

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

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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    Other versions:
  3. Minford, Patrick & Webb, Bruce, 2005. "Estimating large rational expectations models by FIML--some experiments using a new algorithm with bootstrap confidence limits," Economic Modelling, Elsevier, vol. 22(1), pages 187-205, January. [Downloadable!] (restricted)
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  6. Michael T. Kiley, 1998. "Monetary policy under neoclassical and New-Keynesian Phillips Curves, with an application to price level and inflation targeting," Finance and Economics Discussion Series 1998-27, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  8. Heathcote, Jonathan, 2001. "Fiscal Policy with Heterogeneous Agents and Incomplete Markets," Working Papers 01-03, Duke University, Department of Economics. [Downloadable!]
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  9. Nessén, Marianne & Vestin, David, 2000. "Average Inflation Targeting," Working Paper Series 119, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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  11. Vestin, David, 2000. "Price-level Targeting versus Inflation Targeting in a Forward-looking Model," Working Paper Series 106, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
  12. Storesletten, Kjetil & Telmer, Christopher I. & Yaron, Amir, 2004. "Consumption and risk sharing over the life cycle," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 609-633, April. [Downloadable!] (restricted)
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  13. Robert E. Hall, 1984. "Monetary strategy with an elastic price standard," Proceedings, Federal Reserve Bank of Kansas City, pages 137-167.
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  15. Frank Smets, 2000. "What horizon for price stability," Working Paper Series 24, European Central Bank. [Downloadable!]
  16. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December. [Downloadable!] (restricted)
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