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Monetary regimes: is there a trade-off between consumption and employment variability?

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Abstract

Macro models generally assume away heterogeneous welfare in assessing policies. We investigate here within two aggregative models - one with a representative agent, the other a long-used forecasting model of the UK - whether allowing for differences in welfare functions (specifically between those in continuous employment and those with frequent unemployment spells) alters the rankings of monetary policies. We find that it does but that a set of policies (money supply targeting implemented by money supply control) can be found that are robust in the sense of avoiding very poor outcomes for either of the two groups.

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  • Matthews, Kent & Meenagh, David & Minford, Patrick & Webb, Bruce, 2006. "Monetary regimes: is there a trade-off between consumption and employment variability?," Cardiff Economics Working Papers E2006/12, Cardiff University, Cardiff Business School, Economics Section.
  • Handle: RePEc:cdf:wpaper:2006/12
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    Keywords

    Robustness; heterogenous welfare; money supply rules; interest rate setting; price level targeting;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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