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Are there gains from including monetary aggregates and stock market indices in the monetary policy reaction function? A simulation study of recent U.S. monetary policy

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Mandler, Martin

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Abstract

We study how the inclusion of growth rates of monetary aggregates or changes in stock market indices affects the stabilization performance of optimal monetary policy rules when there is uncertainty about the structure of the economy. With a simulation model of the U.S. economy we show that the performance of monetary policy rules that include these variables deteriorates much stronger than that of rules without them if the true economic structure deviates from the one used to derive the rule. We also investigate whether money growth and changes in stock market indices help explaining the Fed's recent monetary policy.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2318.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:2318

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Related research
Keywords: optimal monetary policy monetary policy reaction function robust monetary policy

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods

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