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Cross-checking optimal monetary policy with information from the Taylor rule

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  • Tillmann, Peter

Abstract

This paper shows that monetary policy should be delegated to a central bank that cross-checks optimal policy with information from the Taylor rule. Placing some weight on deviations from a Taylor rule reduces the stabilization bias of discretionary monetary policy.

Suggested Citation

  • Tillmann, Peter, 2012. "Cross-checking optimal monetary policy with information from the Taylor rule," Economics Letters, Elsevier, vol. 117(1), pages 204-207.
    • Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:204-207
    DOI: 10.1016/j.econlet.2012.05.009
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    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1169-1189.
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    8. Dennis, Richard & Soderstrom, Ulf, 2006. "How Important Is Precommitment for Monetary Policy?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 847-872, June.
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    10. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, December.
    11. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May.
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    13. Juha Kilponen & Kai Leitemo, 2008. "Model Uncertainty and Delegation: A Case for Friedman's k‐Percent Money Growth Rule?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2‐3), pages 547-556, March.
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    17. 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.
    18. Jan F. Qvigstad, 2006. "When does an interest rate path “look good”? Criteria for an appropriate future interest rate path," Working Paper 2006/05, Norges Bank.
    19. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
    20. Ravenna, Federico & Walsh, Carl E., 2006. "Optimal monetary policy with the cost channel," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 199-216, March.
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    Citations

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    Cited by:

    1. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    2. Pelin Ilbas & Øistein Røisland & Tommy Sveen, 2012. "Robustifying optimal monetary policy using simple rules as cross-checks," Working Paper 2012/22, Norges Bank.
    3. Bursian Dirk & Roth Markus, 2014. "Optimal policy and Taylor rule cross-checking under parameter uncertainty," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 1-24, January.
    4. Ida, Daisuke, 2019. "Cross-checking monetary policy and equilibrium determinacy under interest rate stabilization," Economics Letters, Elsevier, vol. 179(C), pages 75-77.
    5. Carl E. Walshn, 2016. "Goals versus Rules as Central Bank Preformance Measures," Book Chapters, Hoover Institution, Stanford University.
    6. Donato Masciandaro & Romano Vincenzo Tarsia, 2021. "Society, Politicians, Climate Change and Central Banks: An Index of Green Activism," BAFFI CAREFIN Working Papers 21167, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    7. Walsh, Carl E, 2015. "Goals and Rules in Central Bank Design," Santa Cruz Department of Economics, Working Paper Series qt3md9p6t5, Department of Economics, UC Santa Cruz.
    8. Carl E. Walsh, 2015. "Day Two Keynote Address: Goals and Rules in Central Bank Design," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 295-352, September.

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    More about this item

    Keywords

    Optimal monetary policy; Stabilization bias; Monetary policy delegation; Robustness; Taylor rule;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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