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Evaluating Alternative Monetary Policy Rules

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Author Info
Ray C. Fair () (Cowles Foundation, Yale University)
E. Philip Howrey (University of Michigan)

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Abstract

This paper examines monetary policy from an optimal control perspective. Three loss functions are minimized for each of three models, and the results are compared. The three loss functions target nominal growth, real growth, and inflation, respectively. The three models are a small structural model, a VAR model, and a large structural model. A numerical procedure is presented that can handle a variety of loss functions and models.

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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1091.

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Length: 21 pages
Date of creation: Feb 1995
Date of revision:
Publication status: Published in Journal of Monetary Economics (1996), 38: 173-193
Handle: RePEc:cwl:cwldpp:1091

Note: CFP 940.
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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References listed on IDEAS
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.:
  1. Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January. [Downloadable!] (restricted)
  2. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September. [Downloadable!] (restricted)
  3. Martin Feldstein & James H. Stock, 1993. "The Use of Monetary Aggregate to Target Nominal GDP," NBER Working Papers 4304, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Todd E. Clark, 1994. "Nominal GDP targeting rules: can they stabilize the economy?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 11-25. [Downloadable!]
  5. Hall, R.E. & Mankiw, N.G., 1993. "Nominal Income Targeting," Harvard Institute of Economic Research Working Papers 1650, Harvard - Institute of Economic Research.
    Other versions:
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Cited by:
(explanations, 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.)

  1. Ray C. Fair, 2001. "Actual Federal Reserve policy behavior and interest rate rules," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 61-72. [Downloadable!]
  2. Eric Jondeau & Hervé Le Bihan, 2002. "Evaluating Monetary Policy Rules in Estimated Forward-Looking Models: A Comparison of US and German Monetary Policies," Annales d'Economie et de Statistique, ADRES, issue 67-68, pages 12, Juillet-D. [Downloadable!]
    Other versions:
  3. Gunter Coenen & Volker Wieland, 2000. "A Simple Estimated Euro Area Model With Rational Expectations And Nominal Rigidities," Computing in Economics and Finance 2000 187, Society for Computational Economics. [Downloadable!]
  4. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series 1998-03, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  5. Guenter Coenen & Volker Wieland, 2003. "A Small Estimated Euro Area Model with Rational Expectations and Nominal Rigidities," CFS Working Paper Series 2003/08, Center for Financial Studies. [Downloadable!]
    Other versions:
  6. David Reifschneider & John C. Williams, 1999. "Three lessons for monetary policy in a low inflation era," Finance and Economics Discussion Series 1999-44, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  7. Philip N. Jefferson, 1997. "'Home' base and monetary base rules: elementary evidence from the 1980s and 1990s," Finance and Economics Discussion Series 1997-21, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  8. Andrew Levin & Volker Wieland & John C. Williams, 1998. "Robustness of simple monetary policy rules under model uncertainty," Finance and Economics Discussion Series 1998-45, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  9. Richard Dennis, 2000. "Steps toward identifying central bank policy preferences," Working Papers in Applied Economic Theory 2000-13, Federal Reserve Bank of San Francisco. [Downloadable!]
  10. Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy Rules for Inflation Targeting," NBER Working Papers 6512, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Diana M. Burton & H. Alan Love & Gordon C. Rausser, 2004. "Estimating statistical properties of political economic decisions," Applied Economics, Taylor and Francis Journals, vol. 36(13), pages 1489-1499, July. [Downloadable!] (restricted)
  12. Ray C. Fair, 2000. "Estimated, Calibrated, and Optimal Interest Rate Rules," Cowles Foundation Discussion Papers 1258, Cowles Foundation, Yale University. [Downloadable!]
  13. Ray Fair, 2003. "Optimal Control and Stochastic Simulation of Large Nonlinear Models with Rational Expectations," Computational Economics, Springer, vol. 21(3), pages 245-256, June. [Downloadable!] (restricted)
    Other versions:
  14. Ray C. Fair, 2001. "Estimates of the Effectiveness of Monetary Policy," Cowles Foundation Discussion Papers 1298, Cowles Foundation, Yale University, revised Jun 2003. [Downloadable!]
    Other versions:
  15. Hans M. Amman & David A. Kendrick, 1997. "Should Macroeconomic Policy Makers Consider Parameter Covariances?," Economics, University of Texas at Austin 9701, Center for Applied Research in Economics. [Downloadable!]
    Other versions:
  16. Richard Dennis, 2000. "Optimal simple targeting rules for small open economies," Working Papers in Applied Economic Theory 2000-20, Federal Reserve Bank of San Francisco. [Downloadable!]
  17. John C. Williams, 1999. "Simple rules for monetary policy," Finance and Economics Discussion Series 1999-12, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  18. Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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