When discretion is better: Initial conditions and the timeless perspective
According to Woodford (1999) and (2003) [Woodford, Michael, 1999. Commentary: how should monetary policy be conducted in an era of price stability? In: New challenges for monetary policy. Federal Reserve Bank of Kansas City, pp. 277-316; Woodford, Michael, 2003. Interest and prices: foundations of a theory of monetary policy. Princeton University Press, Princeton, NJ], optimal monetary policy in the New Keynesian model follows the timeless perspective rule. We show why an economy that is sufficiently far away from its steady-state suffers from a short-run cost associated with the timeless perspective. In this case, discretionary policy-making can be better than the timeless perspective policy rule.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert J. Barro & David B. Gordon, 1981.
"A Positive Theory of Monetary Policy in a Natural-Rate Model,"
NBER Working Papers
0807, National Bureau of Economic Research, Inc.
- Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
- Clarida, R. & Gali, J. & Gertler, M., 1999.
"The Science of Monetary Policy: A New Keynesian Perspective,"
99-13, C.V. Starr Center for Applied Economics, New York University.
- 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.
- 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.
- 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.
- Jensen, Christian & McCallum, Bennett T., 2002.
"The non-optimality of proposed monetary policy rules under timeless perspective commitment,"
Elsevier, vol. 77(2), pages 163-168, October.
- 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.
- Sauer, Stephan, 2007. "Frameworks for the Theoretical and Empirical Analysis of Monetary Policy," Munich Dissertations in Economics 7179, University of Munich, Department of Economics.
- McCallum, Bennett T & Nelson, Edward, 2001.
"Timeless Perspective Vs Discretionary Monetary Policy in Forward-Looking Models,"
CEPR Discussion Papers
2752, C.E.P.R. Discussion Papers.
- Bennett T. McCallum & Edward Nelson, 2004. "Timeless perspective vs. discretionary monetary policy in forward-looking models," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 43-56.
- Bennett T. McCallum & Edward Nelson, 2000. "Timeless Perspectives vs. Discretionary Monetary Policy In Forward-Looking Models," NBER Working Papers 7915, National Bureau of Economic Research, Inc.
- Damjanovic, Tatiana & Damjanovic, Vladislav & Nolan, Charles, 2008.
"Unconditionally optimal monetary policy,"
Journal of Monetary Economics,
Elsevier, vol. 55(3), pages 491-500, April.
- Andrew Blake, 2001.
"A Timeless Perspective on Optimality in Forward-Looking Rational Expectations Models,"
NIESR Discussion Papers
188, National Institute of Economic and Social Research.
- 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.
- John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14 National Bureau of Economic Research, Inc.
- John B. Taylor, 1998.
"An Historical Analysis of Monetary Policy Rules,"
NBER Working Papers
6768, National Bureau of Economic Research, Inc.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, September.
- Michael Woodford, 1999. "Commentary : how should monetary policy be conducted in an era of price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 277-316.
When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:107:y:2010:i:2:p:128-130. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.