On Optimal Monetary Policy in a Liquidity Effect Model
AbstractThis paper examines the implications of introducing a variable rate of time preference on the role of monetary policy in a dynamic general equilibrium framework explicitly designed to capture liquidity effects. Variable time preference is incorporated by allowing the discount factor applied to future utility to be decreasing in contemporaneous utility. The model is a more general one, in the sense that the fixed discount factor economy is nested as a special case. Numerical simulations of the more general model indicate that for a range of parameters optimal monetary policy can be qualitatively different. This is in spite of the fact that there are very small quantitative differences in the magnitude of monetary non-neutralities, such as liquidity effects, in the fixed and flexible discount factor environments. Furthermore, within this range, monetary policy is less activist, in the sense that it is procyclical to productivity shocks, as opposed to being countercyclical as in the fixed time preference model.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 118.
Date of creation: 20 Oct 2002
Date of revision:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Angela Fletcher).
If references are entirely missing, you can add them using this form.