Using a simple dynamic, closed economy macroeconomic model, this paper compares optimal commitment rules and optimal discretionary rules with the Taylor rule and the Henderson and McKibbin rule. For some parameter values discretionary policy is found to lead to instability. This paper also explores the stabilizing properties of conditionally optimal rules -rules that use a limites state variable set to minimize the monetary's authority's objective function.
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Paper provided by Australian National University - Department of Economics in its series Papers with number
361.
Length: 42 pages Date of creation: 1999 Date of revision: Handle: RePEc:fth:aunaec:361
Contact details of provider: Postal: THE AUSTRALIAN NATIONAL UNIVERSITY, DEPARTMENT OF ECONOMICS, RESEARCH SCHOOL of PACIFIC STUDIES, RESEARCH SCHOOL OF SOCIAL SCIENCES, G.P.O. 4, CANBERRA ACT 2601 AUSTRALIA..O. BOX 4 CANBERRA 2601 AUSTRALIA. Web page: http://economics.anu.edu.au/economics.htm More information through EDIRC
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Find related papers by JEL classification: E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy