An Optimal Interest Rate Rule with Information from Money and Auction Markets
For an economy characterized by neo-Keynesian wage rigidity, an optimal open market rule is derived based on financial market information, including auction price behavior. Simulations of a small model of the United States--estimated via full information maximum likelihood together with a numerical procedure for solving dynamic, linear rational expectations models--are used to evaluate the response of the economy to sectoral shocks, given the optimal interest rate rule. In the case of three aggregate commodity price indexes studied here, the additional indicator information is unlikely to have significant impact on the performance of monetary policy. Copyright 1994 by Ohio State University Press.
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Volume (Year): 26 (1994)
Issue (Month): 4 (November)
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