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Optimal Advice for Monetary Policy

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  • Basu, Susanto, et al

Abstract

This paper addresses how to give optimal advice about monetary policy when it is known that the advice may not be heeded. The authors examine a simple macroeconomic model in which monetary policy has the ability to stabilize output by offsetting exogenous shocks to aggregate demand. The optimal policy rule for such a model is easily derived, but an advisor who knows that his advice may not be followed should not recommend the optimal policy rule. This is true because, in giving activist advice, such an advisor increases uncertainty about what monetary policy will be followed. The authors solve for the rule that such an advisor should use in giving advice. Coauthors are Miles S. Kimball, N. Gregory Mankiw, and David N. Weil. Copyright 1990 by Ohio State University Press.

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  • Basu, Susanto, et al, 1990. "Optimal Advice for Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(1), pages 19-36, February.
    • Handle: RePEc:mcb:jmoncb:v:22:y:1990:i:1:p:19-36
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Miles's Best 7 "Save-the-World" Posts, as of July 7, 2012
      by in Confessions of a Supply-Side Liberal on 2012-07-08 17:21:00

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    1. Martin Mosler & Niklas Potrafke & Markus Reischmann, 2019. "How to Handle the Fiscal Crisis in Greece: Empirical Evidence Based on a Survey of Economic Experts," Fiscal Studies, John Wiley & Sons, vol. 40(3), pages 375-399, September.

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