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A Primer on the Optimal Monetary Policy Rule: The Case of US

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  • Jangryoul Kim
  • Gieyoung Lim

Abstract

This paper examines the optimal monetary policy rules in a business cycle model with nominal rigidities. Optimality is measured in terms of a utility-based welfare metric, and the welfare effects of the non-linear dynamics of the model are captured by a quadratic approximate solution method. The welfare maximizing rule among a class of Taylor-style rules is characterized by i) super-inertial adjustments in interest rates; ii) strong short run anti-inflation coupled with long run deflation, and iii) increasing interest rates in response to higher real output level and growth.

Suggested Citation

  • Jangryoul Kim & Gieyoung Lim, 2009. "A Primer on the Optimal Monetary Policy Rule: The Case of US," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 12(3), pages 57-78, December.
    • Handle: RePEc:sae:intare:v:12:y:2009:i:3:p:57-78
    DOI: 10.1177/223386590901200304
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    References listed on IDEAS

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