How Different are Money Supply Rules from Taylor Rules?
In this paper we show that a money supply rule (a Taylor-type rule) and a Taylor rule produce substantial stochastic differences in the behavior of the economy. Hence it remains an open question whether one or other type of central bank behavior does a better job in welfare terms-contrary to a recent study (Clarida et al.1999) which called Taylor rules the â€˜modern science of monetary policyâ€™, thereby suggesting that other rules are essentially inferior. We show with illustrative calibration that the rules may produce very different welfare outcomes.
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Volume (Year): 38 (2003)
Issue (Month): 2 (July)
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