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Countercyclical Policy Rules and Optimal Policy

In: Monetary Policy and Macroprudential Regulation with Financial Frictions

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  • Pierre-Richard Agénor

    (University of Manchester, School of Social Sciences)

Abstract

Chapter 5 uses the same model to study the performance of simple countercyclical monetary and macroprudential rules. Four alternative approaches to policy evaluation in DSGE models are discussed: the use of simple rules to either minimize a policy loss function or maximize welfare; a two-stage process involving minimizing a loss function and assessing the performance of each rule on the basis of its welfare benefits; and the Ramsey policy, under which the objective of a social planner is to maximize social welfare, subject to the constraints imposed by the equilibrium solution of the model. The extent to which coordination between policymakers, the central bank and the regulator, can improve outcomes is also addressed

Suggested Citation

  • Pierre-Richard Agénor, 2025. "Countercyclical Policy Rules and Optimal Policy," Springer Books, in: Monetary Policy and Macroprudential Regulation with Financial Frictions, edition 0, chapter 5, pages 277-337, Springer.
    • Handle: RePEc:spr:sprchp:978-3-032-01673-7_5
    DOI: 10.1007/978-3-032-01673-7_5
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