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Taylor rules in a limited participation model

Author

Listed:
  • Lawrence J. Christiano
  • Christopher J. Gust

Abstract

The authors use the limited participation model of money to study Taylor rules' operating characteristics for setting the interest rate. Rules are evaluated according to their ability to protect the economy from bad outcomes like the burst of inflation observed in the 1970s. On the basis of their analysis, the authors argue for a rule that 1) raises the nominal interest rate more than one-for-one with a rise in inflation; and 2) does not change the interest rate in response to a change in output relative to trend.

Suggested Citation

  • Lawrence J. Christiano & Christopher J. Gust, 1999. "Taylor rules in a limited participation model," Working Paper 9902, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:9902
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary policy ; Interest rates;

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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