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An inventory of simple monetary policy rules in a New Keynesian macroeconomic model

  • Lubik, Thomas A.
  • Marzo, Massimiliano

We derive necessary and suffcient conditions for simple monetary policy rules that guarantee equilibrium determinacy in the New Keynesian monetary model. Our modeling framework is derived from a fully specified optimization model that is still amenable to analytical characterisation. The monetary rules analyzed are variants of the basic Taylor rules ranging from simple inflation targeting (current, forward, backward), to the canonical Taylor rules with and without inertial nominal interest rate patterns. We establish that determinacy obtains for a wide range of policy parameters, especially when the monetary authority targets output and smoothes interest rates. Contrary to other results in the literature we do not find a case for super-inertial interest rate policy

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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 16 (2007)
Issue (Month): 1 ()
Pages: 15-36

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Handle: RePEc:eee:reveco:v:16:y:2007:i:1:p:15-36
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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  3. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
  4. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
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  17. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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  19. Rotemberg, Julio J, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 517-31, October.
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