The science of monetary policy: A new Keynesian perspective
AbstractThis paper reviews the recent literature on monetary policy rules. We exposit the monetary policy design problem within a simple baseline theoretical framework. We then consider the implications of adding various real world complications. Among other things, we show that the optimal policy implicitly incorporates inflation targeting. We also characterize the gains from making credible commitments to fight inflation. In contrast to conventional wisdom, we show that gains from commitment may emerge even in the central bank is not trying to inadvisedly push output above its natural level. We also consider the implications of frictions such as imperfect information.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 356.
Date of creation: Sep 1997
Date of revision: Apr 1999
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Web page: http://www.econ.upf.edu/
Monetary policy; credibility; stabilization; new keynesian models;
Other versions of this item:
- Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
- 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.
- 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.
- E0 - Macroeconomics and Monetary Economics - - General
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-03-08 (All new papers)
- NEP-MON-1999-03-08 (Monetary Economics)
- NEP-PKE-1999-03-08 (Post Keynesian Economics)
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