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Optimal Monetary Policy Inertia

Listed author(s):
  • Woodford, Michael

    (Princeton University)

The first section of this paper presents a model of the economy and poses the problem of optimal monetary policy. The second characterizes the responses of endogenous variables, including nominal interest rates, to shocks under an optimal regime, and highlights the advantages of commitment, by contrasting the optimal responses with those that would result from optimization under discrestion. Then, the next section considers the optimal assignment of an objective to a central bank with instrument but not goal) independence, that is expected to pursue its assigned goal under discretion. The last section considers the form of interest rate feedback rule that can achieve the desired dynamic responses to chocks, if the central bank's commitment to such a rule is credible. to the private sector.

(This abstract was borrowed from another version of this item.)

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Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 666.

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Length: 112 pages
Date of creation: 03 Nov 2000
Handle: RePEc:hhs:iiessp:0666
Note: A later version of the paper is also available as NBER working paper no. 7261, July 1999, and at the author's web page at www.princeton.edu/~woodford.
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Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden

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Web page: http://www.iies.su.se/

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