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A comparison of some basic monetary policy regimes for open economies: implications of different degrees of instrument adjustment and wage persistence

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Author Info
Dale W. Henderson
Warwick J. McKibbin

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Abstract

Monetary policy regime combinations are compared for symmetric and asym­metric temporary shocks to money demand, goods demand, and productivity. In every region, the interest-rate instrument is either kept constant or changed to eliminate (full instrument adjustment) or reduce (partial instrument adjustment) the gap between actual and desired values for an intermediate target: the money supply, nominal income, or output plus inflation. Nominal wage persistence may be absent (Contract hypothesis) or present (Phillips hypothesis and Taylor hypothesis). There are analytical and simulation results from a two-region workhorse model and simulation results from the McKibbin-Sachs Global model. The ranking of regime combinations depends not only on the ultimate target and the source of shocks but also on the degrees of instrument adjustment and wage persistence.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 458.

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Date of creation: 1993
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Keywords: Econometrics ; Monetary policy;

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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. Parkin, Michael, 1978. "A Comparison of Alternative Techniques of Monetary Control under Rational Expectations," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 46(3), pages 252-87, September.
  2. Jacob A. Frenkel & Morris Goldstein & Paul R. Masson, 1989. "Simulating the Effects of Some Simple Coordinated versus Uncoordinated Policy," NBER Working Papers 2929, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Henderson, Dale W. & McKibbin, Warwick J., 1993. "A comparison of some basic monetary policy regimes for open economies: implications of different degrees of instrument adjustment and wage persistence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 221-317, December. [Downloadable!] (restricted)
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  4. Bean, Charles R, 1983. "Targeting Nominal Income: An Appraisal," Economic Journal, Royal Economic Society, vol. 93(372), pages 806-19, December. [Downloadable!] (restricted)
  5. Richard C. Marston, 1985. "Stabilization Policies in Open Economies," NBER Working Papers 1117, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Joshua Aizenman & Jacob A. Frenkel, 1986. "Targeting Rules for Monetary Policy," NBER Working Papers 1881, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Boyer, Russell S, 1978. "Optimal Foreign Exchange Market Intervention," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1045-55, December. [Downloadable!] (restricted)
  8. Mckibbin, Warwick J. & Sachs, Jeffrey D., 1988. "Comparing the global performance of alternative exchange arrangements," Journal of International Money and Finance, Elsevier, vol. 7(4), pages 387-410. [Downloadable!] (restricted)
  9. James Tobin, 1980. "Stabilization Policy Ten Years After," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1980-1), pages 19-90. [Downloadable!]
  10. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February. [Downloadable!] (restricted)
  11. Joseph E. Gagnon & Dale W. Henderson, 1990. "Nominal interest rate pegging under alternative expectations hypotheses," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 438-473.
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  12. William Poole, 1970. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Staff Studies 57, Board of Governors of the Federal Reserve System (U.S.).
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  13. Dale W. Henderson, 1979. "Financial policies in open economies," International Finance Discussion Papers 133, Board of Governors of the Federal Reserve System (U.S.).
  14. Aizenman, Joshua & Frenkel, Jacob A, 1986. "Supply Shocks, Wage Indexation and Monetary Accommodation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(3), pages 304-22, August. [Downloadable!] (restricted)
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  15. Reinhart, Vincent, 1990. "Targeting Nominal Income in a Dynamic Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(4), pages 427-43, November. [Downloadable!] (restricted)
  16. Henderson, Dale W, 1979. "Financial Policies in Open Economies," American Economic Review, American Economic Association, vol. 69(2), pages 232-39, May. [Downloadable!] (restricted)
  17. Marston, Richard C., 1985. "Stabilization policies in open economies," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 17, pages 859-916 Elsevier. [Downloadable!] (restricted)
  18. Marston, Richard C, 1984. "Real Wages and the Terms of Trade: Alternative Indexation Rules for an Open Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(3), pages 285-301, August. [Downloadable!] (restricted)
  19. Matthew B. Canzoneri & Dale W. Henderson, 1991. "Monetary Policy in Interdependent Economies: A Game-Theoretic Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031787.
  20. Victor E. Argy, 1991. "Nominal Income Targeting - A Critical Evaluation," IMF Working Papers 91/92, International Monetary Fund.
  21. Don E. Roper & Stephen J. Turnovsky, 1980. "Optimal Exchange Market Intervention in a Simple Stochastic Macro Model," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 296-309, May. [Downloadable!] (restricted)
  22. Joseph E. Gagnon & Ralph W. Tryon, 1993. "Price and output stability under alternative monetary policy rules," Proceedings, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  23. Meade, James E, 1978. "The Meaning of "Internal Balance"," Economic Journal, Royal Economic Society, vol. 88(351), pages 423-35, September. [Downloadable!] (restricted)
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  24. Asako, Kazumi & Wagner, Helmut, 1992. "Nominal Income Targeting versus Money Supply Targeting," Scottish Journal of Political Economy, Scottish Economic Society, vol. 39(2), pages 167-87, May.
  25. Richard C. Marston, 1984. "Real Wages and the Terms of Trade: Alternative Indexation Rules for an Open Economy," NBER Working Papers 1046, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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