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Unconditionally Optimal Monetary Policy

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  • Tatiana Damjanovic

    ()

  • Vladislav Damjanovic

    ()

  • Charles Nolan

    ()

Abstract

We develop a simple and intuitive approach for analytically deriving unconditionally optimal (UO) policies, a topic of enduring interest in optimal monetary policy analysis. The approach can be employed to both general linear-quadratic problems and to the underlying non-linear environments. We provide a detailed example using a canonical New Keynesian framework.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/wp0721.pdf
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Bibliographic Info

Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200721.

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Date of creation: 15 Oct 2007
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Handle: RePEc:san:cdmawp:0721

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Keywords: Unconditional expectations; optimal monetary policy.;

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References

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  1. Tatiana Damjanovic & Charles Nolan, 2006. "Relative Price Distortions and Inflation Persistence," CDMA Working Paper Series 200611, Centre for Dynamic Macroeconomic Analysis.
  2. McCallum, Bennett-T, 2005. "What Is the Proper Perspective for Monetary Policy Optimality?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(S1), pages 13-24, October.
  3. Aubhik Khan & Robert King & Alexander L. Wolman, 2002. "Optimal monetary policy," Working Papers 02-19, Federal Reserve Bank of Philadelphia.
  4. Schmitt-Grohe, Stephanie & Uribe, Martin, 2007. "Optimal simple and implementable monetary and fiscal rules," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1702-1725, September.
  5. Michael Woodford, 2001. "Inflation Stabilization and Welfare," NBER Working Papers 8071, National Bureau of Economic Research, Inc.
  6. Robert Kollmann, 2002. "Monetary policy rules in the open economy: effects of welfare and business cycles," ULB Institutional Repository 2013/7628, ULB -- Universite Libre de Bruxelles.
  7. Woodford, Michael, 2000. "Optimal Monetary Policy Inertia," Seminar Papers 666, Stockholm University, Institute for International Economic Studies.
  8. Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
  9. 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.
  10. Christopher J. Erceg & Dale W. Henderson & Andrew T. Levin, 1999. "Optimal monetary policy with staggered wage and price contracts," International Finance Discussion Papers 640, Board of Governors of the Federal Reserve System (U.S.).
  11. Somers, Harold M, 1971. "On the Demise of the Social Discount Rate," Journal of Finance, American Finance Association, vol. 26(2), pages 565-78, May.
  12. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  13. Whiteman, Charles H, 1986. "An Analytical Policy Design under Rational Expectations," Econometrica, Econometric Society, vol. 54(6), pages 1387-1405, November.
  14. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September.
  15. Robert J. Barro, 1999. "Ramsey Meets Laibson In The Neoclassical Growth Model," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1125-1152, November.
  16. n/a, 2001. "A Timeless Perspective on Optimality in Forward-Looking Rational Expectations Models," NIESR Discussion Papers 154, National Institute of Economic and Social Research.
  17. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, December.
  18. Christian Jensen & Bennett T. Mccallum, 2010. "Optimal Continuation versus the Timeless Perspective in Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 1093-1107, 09.
  19. 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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Citations

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Cited by:
  1. Damjanovic, Tatiana & Damjanovic, Vladislav & Nolan, Charles, 2011. "Ordering Policy Rules with an Unconditional Welfare Measure," SIRE Discussion Papers 2011-16, Scottish Institute for Research in Economics (SIRE).
  2. Martin Ellison & Charles Brendon & Martin Ellison, 2012. "Dynamic Rawlsian Policy," Economics Series Working Papers 595, University of Oxford, Department of Economics.
  3. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  4. Michael Hatcher, 2013. "Indexed versus nominal government debt under inflation and price-level targeting," Working Papers 2013_11, Business School - Economics, University of Glasgow.
  5. Dennis, Richard, 2010. "When is discretion superior to timeless perspective policymaking?," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 266-277, April.
  6. Sergio A. Lago Alves, 2012. "Optimal Policy When the Inflation Target is not Optimal," Working Papers Series 271, Central Bank of Brazil, Research Department.
  7. Richard Dennis, 2009. "Timeless Perspective Policymaking: When is Discretion Superior?," NCER Working Paper Series 38, National Centre for Econometric Research.
  8. Kozo Ueda, 2010. "A Time-Invariant Duration Policy under the Zero Lower Bound," IMES Discussion Paper Series 10-E-12, Institute for Monetary and Economic Studies, Bank of Japan.
  9. Sergio A. Lago Alves, 2013. "Is the Divine Coincidence Just a Coincidence? The Implications of Trend Inflation," Working Papers Series 329, Central Bank of Brazil, Research Department.
  10. Masson, Paul R. & Shukayev, Malik D., 2011. "Are bygones not bygones? Modeling price-level targeting with an escape clause and lessons from the gold standard," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 162-175, June.
  11. Hatcher, Michael C., 2011. "Comparing inflation and price-level targeting: A comprehensive review of the literature," Cardiff Economics Working Papers E2011/22, Cardiff University, Cardiff Business School, Economics Section.
  12. Sauer, Stephan, 2010. "When discretion is better: Initial conditions and the timeless perspective," Economics Letters, Elsevier, vol. 107(2), pages 128-130, May.

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