We study the properties of alternative central bank targeting procedures in a general equilibrium, monetary model of the US economy with labor contracts, endogenous velocity and three shocks: money demand, supply and fiscal. Money demand â€“ velocity â€“ shocks emerge as the main source of macroeconomic volatility. Nominal interest rate targeting results in greater stability than money targeting. Interestingly, this holds independently of the type of the shock (unlike Poole). Interest rate targeting also generates a higher level of welfare.
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Volume (Year): 56 (2011)
Issue (Month): 4 (December)
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