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Optimal Monetary Policy Inertia.

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  • Woodford, M.

Abstract

The first section of this paper presents a model of the economy and poses the problem of optimal monetary policy. The second characterizes the responses of endogenous variables, including nominal interest rates, to shocks under an optimal regime, and highlights the advantages of commitment, by contrasting the optimal responses with those that would result from optimization under discrestion. Then, the next section considers the optimal assignment of an objective to a central bank with instrument but not goal) independence, that is expected to pursue its assigned goal under discretion. The last section considers the form of interest rate feedback rule that can achieve the desired dynamic responses to chocks, if the central bank's commitment to such a rule is credible. to the private sector.

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Bibliographic Info

Paper provided by Stockholm - International Economic Studies in its series Papers with number 666.

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Length: 90 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:fth:stocin:666

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Keywords: MONETARY POLICY ; CENTRAL BANKS ; MACROECONOMICS;

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References

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