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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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Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Fax: 01334 462444
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Web page: http://www.st-andrews.ac.uk/cdma
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Keywords: Unconditional expectations; optimal monetary policy.;

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References

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  1. Stephanie Schmitt-Grohé & Martín Uribe, 2007. "Optimal simple and implementable monetary and fiscal rules," Working Paper 2007-24, Federal Reserve Bank of Atlanta.
  2. Christian Jensen & Bennett C. McCallum, 2002. "The Non-Optimality of Proposed Monetary Policy Rules Under Timeless-Perspective Commitment," NBER Working Papers 8882, National Bureau of Economic Research, Inc.
  3. Aubhik Khan & Robert G. King & Alexander L. Wolman, 2003. "Optimal Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 825-860.
  4. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  5. Blake, Andrew P., 2002. "A 'Timeless Perspective' on Optimality in Forward-Looking Rational Expectations Models," Royal Economic Society Annual Conference 2002 30, Royal Economic Society.
  6. Woodford, Michael, 2000. "Optimal Monetary Policy Inertia," Seminar Papers 666, Stockholm University, Institute for International Economic Studies.
  7. 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.
  8. 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.
  9. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
  10. 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.
  11. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, January.
  12. Kollmann, Robert, 2002. "Monetary policy rules in the open economy: effects on welfare and business cycles," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 989-1015, July.
  13. Tatiana Damjanovic & Charles Nolan, 2006. "Relative Price Distortions and Inflation Persistence," CDMA Working Paper Series 200611, Centre for Dynamic Macroeconomic Analysis.
  14. Michael Woodford, 2001. "Inflation Stabilization and Welfare," NBER Working Papers 8071, National Bureau of Economic Research, Inc.
  15. 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.
  16. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September.
  17. Whiteman, Charles H, 1986. "An Analytical Policy Design under Rational Expectations," Econometrica, Econometric Society, vol. 54(6), pages 1387-1405, November.
  18. Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
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Citations

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Cited by:
  1. Michael Hatcher, 2013. "Indexed versus nominal government debt under inflation and price-level targeting," Working Papers 2013_11, Business School - Economics, University of Glasgow.
  2. Tatiana Damjanovic & Vladislav Damjanovic & Charles Nolan, 2011. "Ordering policy rules with an unconditionalwelfare measure," Discussion Paper Series, Department of Economics 201102, Department of Economics, University of St. Andrews.
  3. Richard Dennis, 2008. "Timeless perspective policymaking: When is discretion superior?," Working Paper Series 2008-21, Federal Reserve Bank of San Francisco.
  4. Sauer, Stephan, 2010. "When discretion is better: Initial conditions and the timeless perspective," Economics Letters, Elsevier, vol. 107(2), pages 128-130, May.
  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. 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.
  7. 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.
  8. 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.
  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. Martin Ellison & Charles Brendon & Martin Ellison, 2012. "Dynamic Rawlsian Policy," Economics Series Working Papers 595, University of Oxford, Department of Economics.
  11. Sergio A. Lago Alves, 2012. "Optimal Policy When the Inflation Target is not Optimal," Working Papers Series 271, Central Bank of Brazil, Research Department.

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