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Monetary Policy Rules

Author

Listed:
  • George McCandless

    (Central Bank of Argentina)

Abstract

The object of this paper is to consider the effects on an economy of two alternative channels of monetary policy using a cash in advance model. One of the channels is simply giving money to less well of households (unskilled). The second channel is similar to central bank monetary policy, each period lump sum monetary transfers are given to or extracted from financial intermediaries by skilled and unskilled workers. Having a model with two channels of monetary policy that operate in fundamentally different ways allows one to think carefully about the effects of a monetary policy of sterilization of inflation through contraction of money on the financial side. In addition, having two groups of households, one unskilled, with lower wages and reduced opportunities for saving, and another skilled with higher wages and the ability to own and rent out capital in addition to holding bank deposits, permits a more careful consideration of the welfare effects of this type of policy. In addition, this kind of analysis helps explain why different countries, those with more or fewer unskilled workers, will choose to follow different policies with respect to a politically optimal inflation rate.

Suggested Citation

  • George McCandless, 2021. "Monetary Policy Rules," BCRA Working Paper Series 202192, Central Bank of Argentina, Economic Research Department.
    • Handle: RePEc:bcr:wpaper:202192
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    More about this item

    Keywords

    cash in advance models; monetary policy rules; monetary policy transmission channels; optimal inflation rate;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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