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Optimal monetary policy in a model of overlapping price contracts

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  • Jeffrey C. Fuhrer

Abstract

This study estimates a model of overlapping nominal price contracts over three distinct monetary policy regimes, testing the stability of the parameters in the model across regimes. Upon finding a model that is stable over the three subsamples, the model then holds for the most recent monetary regime is used to compute the optimal policy frontier - the efficient combinations of output and inflation variances - and compared to actual policy performance. The study then evaluates the robustness of policy conclusions to particulars of the specification, and discusses the general properties that are required of a model in order to produce a plausible estimate of the optimal policy frontier.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 94-2.

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Date of creation: 1994
Date of revision:
Publication status: Published in Journal of Money, Credit and Banking 29, no. 2 (May 1997): 214-34.
Handle: RePEc:fip:fedbwp:94-2

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Related research

Keywords: Prices ; Monetary policy;

References

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  1. Jeff Fuhrer & George Moore, 1993. "Monetary policy and the behavior of long-term real interest rates," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  2. Fuhrer, Jeffrey C. & Hooker, Mark A., 1993. "Learning about monetary regime shifts in an overlapping wage contract model," Journal of Economic Dynamics and Control, Elsevier, vol. 17(4), pages 531-553, July.
  3. Anderson, Gary & Moore, George, 1985. "A linear algebraic procedure for solving linear perfect foresight models," Economics Letters, Elsevier, vol. 17(3), pages 247-252.
  4. Fuhrer, Jeff & Moore, George, 1995. "Inflation Persistence," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 127-59, February.
  5. Jeff Fuhrer & George Moore, 1989. "Monetary policy rules and the indicator properties of asset prices," Finance and Economics Discussion Series 89, Board of Governors of the Federal Reserve System (U.S.).
  6. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September.
  7. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
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Cited by:
  1. Aaron Drew & Benjamin Hunt, 1999. "Efficient simple policy rules and the implications of potential output uncertainty," Reserve Bank of New Zealand Discussion Paper Series G99/5, Reserve Bank of New Zealand.
  2. Krawczyk, Jacek & Pharo, Alastair & Simpson, Mark, 2011. "Approximations to viability kernels for sustainable macroeconomic policies," Working Paper Series 1531, Victoria University of Wellington, School of Economics and Finance.

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