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Inflation targeting, Taylor rule and money neutrality: A post-Keynesian critic

Author

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  • Mariana de Lourdes Moreira Lopes
  • Maria de Lourdes Rollemberg Mollo
  • Fabiana Silvio Colbano

Abstract

This paper critically discusses the inflation targeting regime proposed by orthodox economists, in particular the Taylor Rule. The article describes how the Taylor Rule assumes the argument of money neutrality inherited from the Quantitative Theory of Money. It discusses critically the ways of operation of the rule, and the negative impacts of the interest rate over the potential output. In this sense, the article shows the possible vicious circles of the monetary policy when money is not neutral, as is the case for post-keynesian economists. The relation of interest rates, potential output and the output gap is illustrated in some estimates using the methodology of Vector Auto-regressive in the Brazilian case. JEL Classification: E12; E52.

Suggested Citation

  • Mariana de Lourdes Moreira Lopes & Maria de Lourdes Rollemberg Mollo & Fabiana Silvio Colbano, 2012. "Inflation targeting, Taylor rule and money neutrality: A post-Keynesian critic," Brazilian Journal of Political Economy, Center of Political Economy, vol. 32(2), pages 282-304.
    • Handle: RePEc:ekm:repojs:v:32:y:2012:i:2:p:282-304:id:354
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    More about this item

    Keywords

    quantitative theory of money; Taylor rule; potential output; postkeynesian critic; output gap;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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