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Poole in the New Keynesian model

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  • Collard, Fabrice
  • Dellas, Harris

Abstract

We study the properties of alternative central bank targeting procedures within the standard New Keynesian model. We find that Poole’s famous insights concerning the output stabilization properties of money and interest-rate targeting obtain when intertemporal substitution is low, and that output volatility rankings do not induce similar welfare rankings. Unlike the popular presumption, money targeting always fares better for money demand shocks. For fiscal shocks, money targeting does better for low and worse for high degree of intertemporal substitution. The opposite pattern obtains for supply shocks.
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Suggested Citation

  • Collard, Fabrice & Dellas, Harris, 2005. "Poole in the New Keynesian model," European Economic Review, Elsevier, vol. 49(4), pages 887-907, May.
  • Handle: RePEc:eee:eecrev:v:49:y:2005:i:4:p:887-907
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    Cited by:

    1. Andreas Schabert, 2005. "Discretionary Policy, Multiple Equilibria, and Monetary Instruments," Tinbergen Institute Discussion Papers 05-098/2, Tinbergen Institute.
    2. Benassy, Jean-Pascal, 2007. "IS-LM and the multiplier: A dynamic general equilibrium model," Economics Letters, Elsevier, vol. 96(2), pages 189-195, August.
    3. Benassy, Jean-Pascal, 2007. "Ricardian equivalence and the intertemporal Keynesian multiplier," Economics Letters, Elsevier, vol. 94(1), pages 118-123, January.
    4. Biscarri, Javier Gómez & Moreno, Antonio & Gracia, Fernando Pérez de, 2010. "Money demand accommodation: Impact on macro-dynamics and policy consequences," Journal of Policy Modeling, Elsevier, vol. 32(1), pages 138-154, January.
    5. Singh, Rajesh & Subramanian, Chetan, 2009. "Optimal choice of monetary policy instruments under velocity and fiscal shocks," Economic Modelling, Elsevier, vol. 26(5), pages 865-877, September.
    6. Alessandro Piergallini, 2006. "Real Balance Effects and Monetary Policy," Economic Inquiry, Western Economic Association International, vol. 44(3), pages 497-511, July.
    7. Piti Disyatat, 2008. "Monetary policy implementation: Misconceptions and their consequences," BIS Working Papers 269, Bank for International Settlements.
    8. Andreas Schabert, 2006. "Central Bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 742-762, October.
    9. repec:ebl:ecbull:v:30:y:2010:i:1:p:605-613 is not listed on IDEAS
    10. Arnoud Stevens, 2015. "Optimal monetary policy response to endogenous oil price fluctuations," Working Paper Research 277, National Bank of Belgium.
    11. Jordi Caballé & Jana Hromcová, 2011. "The Role of Central Bank Operating Procedures in an Economy with Productive Government Spending," Computational Economics, Springer;Society for Computational Economics, vol. 37(1), pages 39-65, January.
    12. Meixing Dai, 2010. "Financial volatility and optimal instrument choice: A revisit to Poole's analysis," Economics Bulletin, AccessEcon, vol. 30(1), pages 605-613.
    13. Schabert, Andreas, 2005. "Money supply and the implementation of interest rate targets," Working Paper Series 483, European Central Bank.
    14. Stefan Niemann & Paul Pichler & Gerhard Sorger, 2013. "Central Bank Independence And The Monetary Instrument Problem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1031-1055, August.
    15. Correani, L. & Di Dio, F. & Patrì, S., 2014. "Optimal choice of fiscal policy instruments in a stochastic IS–LM model," Mathematical Social Sciences, Elsevier, vol. 71(C), pages 30-42.
    16. Mathias Hoffmann & Bernd Kempa, 2009. "A Poole Analysis in the New Open Economy Macroeconomic Framework ," Review of International Economics, Wiley Blackwell, vol. 17(5), pages 1074-1097, November.
    17. Jean-Pascal Bénassy, 2006. "Ricardian equivalence and the intertemporal Keynesian multiplier," PSE Working Papers halshs-00590509, HAL.
    18. Hoffmann, Mathias & Kempa, Bernd, 2006. "The Poole analysis in the new open economy macroeconomic framework," CFR Working Papers 06-08, University of Cologne, Centre for Financial Research (CFR).
    19. Bhattacharya, Joydeep & Singh, Rajesh, 2005. "Optimal Choice of Monetary Instruments in an Economy with Real and Liquidity Shocks," Staff General Research Papers Archive 12355, Iowa State University, Department of Economics.
    20. Totzek, Alexander, 2008. "The Bank, the Bank-Run, and the Central Bank: The Impact of Early Deposit Withdrawals in a New Keynesian Framework," Economics Working Papers 2008-20, Christian-Albrechts-University of Kiel, Department of Economics.
    21. Marcelo de C. Griebeler & Ronald Otto Hillbrecht, 2014. "Convexity of the central bank's loss function and dependence between monetary instruments," Economics Bulletin, AccessEcon, vol. 34(4), pages 2275-2291.
    22. Sell, Friedrich L. & Kermer, Silvio, 2006. "William Poole in der modernen Makroökonomik: Exegese des ursprünglichen Beitrags und seiner Fortentwicklungen für die offene Volkswirtschaft," Working Papers in Economics 2006,3, Bundeswehr University Munich, Economic Research Group.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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