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The Science of Monetary Policy: A New Keynesian Perspective

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Author Info
Richard Clarida
Jordi Galí ()
Mark Gertler

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Abstract

This 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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File URL: http://www.econ.upf.edu/docs/papers/downloads/356.pdf
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Publisher Info
Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 356.

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Date of creation: Sep 1997
Date of revision: Apr 1999
Handle: RePEc:upf:upfgen:356

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Web page: http://www.econ.upf.edu/

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Related research
Keywords: Monetary policy; credibility; stabilization; new keynesian models;

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Find related papers by JEL classification:
E0 - Macroeconomics and Monetary Economics - - General
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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  1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)
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