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Optimal Monetary Policy Rules from a Timeless Perspective

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  • Tatiana Damjanovic

    ()

  • Vladislav Damjanovic

    ()

  • Charles Nolan

    ()

Abstract

The timelessly optimal monetary policy proposed by Woodford (2003) may be dominated by alternative timeless policies. We provide a formal justification for these alternative policies. We demonstrate why discount rates do not matter and establish that optimizing over the unconditional expectation of the policy criterion function recovers these alternative strategies.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/wp0510.pdf
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Bibliographic Info

Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200510.

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Date of creation: 15 Oct 2005
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Handle: RePEc:san:cdmawp:0510

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Keywords: Time consistency; unconditional expectation; timeless perspective; optimal monetary policy.;

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  1. Kollmann, Robert, 2002. "Monetary Policy Rules in the Open Economy: Effects on Welfare and Business Cycles," CEPR Discussion Papers 3279, C.E.P.R. Discussion Papers.
  2. Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers 99-13, C.V. Starr Center for Applied Economics, New York University.
  3. Blake, Andrew P. & Kirsanova, Tatiana, 2004. "A note on timeless perspective policy design," Economics Letters, Elsevier, vol. 85(1), pages 9-16, October.
  4. Andrew Levin & Christopher J. Erceg & Dale W. Henderson, 1999. "Optimal Monetary Policy with Staggered Wage and Price Contracts," Computing in Economics and Finance 1999 1151, Society for Computational Economics.
  5. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September.
  6. Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
  7. Woodford, M., 1999. "Optimal Monetary Policy Inertia.," Papers 666, Stockholm - International Economic Studies.
  8. Söderlind, Paul, 1998. "Solution and Estimation of RE Macromodels with Optimal Policy," Working Paper Series in Economics and Finance 256, Stockholm School of Economics.
  9. Julio J. Rotemberg & Michael Woodford, 1998. "Interest-Rate Rules in an Estimated Sticky Price Model," NBER Working Papers 6618, National Bureau of Economic Research, Inc.
  10. Marc P. Giannoni & Michael Woodford, 2003. "Optimal Interest-Rate Rules: I. General Theory," NBER Working Papers 9419, National Bureau of Economic Research, Inc.
  11. Andrew P. Blake, 2001. "A `Timeless Perspective' on Optimality in Forward-Looking Rational Expectations Models," NIESR Discussion Papers 188, National Institute of Economic and Social Research.
  12. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  13. Jensen, Christian & McCallum, Bennett T., 2002. "The non-optimality of proposed monetary policy rules under timeless perspective commitment," Economics Letters, Elsevier, vol. 77(2), pages 163-168, October.
  14. Julio J. Rotemberg & Michael Woodford, 1998. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy: Expanded Version," NBER Technical Working Papers 0233, National Bureau of Economic Research, Inc.
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