Monetary policy in the presence of a stochastic deficit

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Monetary policy in the presence of a stochastic deficit

Author Info

John Bryant
Neil Wallace

Abstract

This paper presents a welfare analysis of monetary policy rules that differ as regards the extent to which monetary policy accommodates an exogenous, stochastic deficit. Examples show that a nonaccommodating rule, one involving a higher ratio of bonds to currency the higher the deficit, is not necessarily better than rules that accommodate: either a rule involving a constant ratio of bonds to currency or one involving a lower ratio of bonds to currency the higher the deficit. Moreover, the nonaccommodating rule can imply more variation in the price level than the accommodating rules.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 42.

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Date of creation: 1979
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Handle: RePEc:fip:fedmsr:42

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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.:

Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January. [Downloadable!] (restricted)
Bryant, John & Wallace, Neil, 1979. "The Inefficiency of Interest-bearing National Debt," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 365-81, April. [Downloadable!] (restricted)
Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467. [Downloadable!] (restricted)

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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.)

Edward Nelson, 2003. "Money and the transmission mechanism in the optimizing IS-LM specification," Working Papers 2003-019, Federal Reserve Bank of St. Louis. [Downloadable!]
Other versions:
- Nelson, Edward, 2003. "Money and the Transmission Mechanism in the Optimizing IS-LM Specification," CEPR Discussion Papers 3898, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
John Bryant, 1979. "Demand management: an illustrative example," Staff Report 46, Federal Reserve Bank of Minneapolis. [Downloadable!]

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