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The Science of Monetary Policy: A New Keynesian Perspective

  • Clarida, R.
  • Gali, J.
  • Gertler, M.

This paper reviews the recent literature on monetary policy rules. We exploit the monetary policy design problem within a simple baseline theoretical framework. We then consider the implications of adding various real world complications. Among other things, we show that the optimal policy implicitly incorporates inflation targeting. We also characterize the gains from making a credible commitment to fight inflation. In contrast to conventional wisdom, we show that gains from commitment may emerge even if the central bank is not trying to inadvisedly push output above its natural level. We also consider the implications of frictions such as imperfect information.

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File URL: http://econ.as.nyu.edu/docs/IO/9186/RR99-13.PDF
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Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 99-13.

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Length: 104 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:cvs:starer:99-13
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