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Evaluating alternative monetary policy rules

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  • Fair, Ray C.
  • Howrey, E. Philip

Abstract

This paper examines monetary policy from an optimal control perspective. Three loss functions are minimized for each of three models, and the results are compared. The three loss functions target nominal growth, real growth, and inflation, respectively. The three models are a small structural model, a VAR model, and a large structural model. A numerical procedure is presented that can handle a variety of loss functions and models.
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Suggested Citation

  • Fair, Ray C. & Howrey, E. Philip, 1996. "Evaluating alternative monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 173-193, October.
  • Handle: RePEc:eee:moneco:v:38:y:1996:i:2:p:173-193
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    1. Robert E. Hall & N. Gregory Mankiw, 1994. "Nominal Income Targeting," NBER Chapters,in: Monetary Policy, pages 71-94 National Bureau of Economic Research, Inc.
    2. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-1286, September.
    3. Dean Croushore & Tom Stark, 1995. "Evaluating McCallum's rule for monetary policy," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 3-14.
    4. Todd E. Clark, 1994. "Nominal GDP targeting rules: can they stabilize the economy?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 11-25.
    5. Martin Feldstein & James H. Stock, 1994. "The Use of a Monetary Aggregate to Target Nominal GDP," NBER Chapters,in: Monetary Policy, pages 7-69 National Bureau of Economic Research, Inc.
    6. James Tobin, 1980. "Stabilization Policy Ten Years After," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 19-90.
    7. John P. Judd & Brian Motley, 1993. "Using a nominal GDP rule to guide discretionary monetary policy," Economic Review, Federal Reserve Bank of San Francisco, pages 3-11.
    8. Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
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