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Avoiding Dark Corners: A Robust Monetary Policy Framework for the United States

Author

Listed:
  • Ali Alichi
  • Kevin Clinton
  • Charles Freedman
  • Mr. Ondrej Kamenik
  • Michel Juillard
  • Mr. Douglas Laxton
  • Mr. Jarkko Turunen
  • Hou Wang

Abstract

The Fed has taken several steps towards strengthening its monetary framework over the past several years. Those steps have supported the Fed’s efforts to stimulate the economy through forward guidance despite being constrained by having policy rates at zero. We show that an optimal control approach to monetary policy, which includes the publication of a baseline forecast and a description of the uncertainties around that outlook, combined with an improvement in the Fed’s communications toolkit, could further enhance the effectiveness of Fed policy. In the current conjuncture, such a risk management approach to monetary policy would result in both a later liftoff of policy rates and a modest, but planned, overshooting of inflation.

Suggested Citation

  • Ali Alichi & Kevin Clinton & Charles Freedman & Mr. Ondrej Kamenik & Michel Juillard & Mr. Douglas Laxton & Mr. Jarkko Turunen & Hou Wang, 2015. "Avoiding Dark Corners: A Robust Monetary Policy Framework for the United States," IMF Working Papers 2015/134, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2015/134
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    Cited by:

    1. Christian P Pinshi, 2022. "Ciblage des prévisions d'inflation : Un nouveau cadre pour la politique monétaire ?," Working Papers hal-03548273, HAL.
    2. Giliberto Capano & Jun Jie Woo, 2017. "Resilience and robustness in policy design: a critical appraisal," Policy Sciences, Springer;Society of Policy Sciences, vol. 50(3), pages 399-426, September.
    3. Natsuki Arai, 2016. "Evaluating the Efficiency of the FOMC's New Economic Projections," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(5), pages 1019-1049, August.
    4. Narayana Kocherlakota, 2016. "Rules versus Discretion: A Reconsideration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(2 (Fall)), pages 1-55.
    5. Rania A. Al-Mashat & Mr. Ales Bulir & N. Nergiz Dinçer & Tibor Hlédik & Mr. Tomás Holub & Asya Kostanyan & Mr. Douglas Laxton & Armen Nurbekyan & Mr. Rafael A Portillo & Hou Wang, 2018. "An Index for Transparency for Inflation-Targeting Central Banks: Application to the Czech National Bank," IMF Working Papers 2018/210, International Monetary Fund.
    6. Mr. Maurice Obstfeld & Kevin Clinton & Mr. Ondrej Kamenik & Mr. Douglas Laxton & Ms. Yulia Ustyugova & Hou Wang, 2016. "How to Improve Inflation Targeting in Canada," IMF Working Papers 2016/192, International Monetary Fund.
    7. Ms. Elif C Arbatli Saxegaard & Mr. Dennis P Botman & Kevin Clinton & Pietro Cova & Vitor Gaspar & Zoltan Jakab & Mr. Douglas Laxton & Mr. Constant A Lonkeng Ngouana & Mr. Joannes Mongardini & Hou Wang, 2016. "Reflating Japan: Time to Get Unconventional?," IMF Working Papers 2016/157, International Monetary Fund.
    8. Kevin Clinton & Charles Freedman & Michel Juillard & Mr. Ondrej Kamenik & Mr. Douglas Laxton & Hou Wang, 2015. "Inflation-Forecast Targeting: Applying the Principle of Transparency," IMF Working Papers 2015/132, International Monetary Fund.
    9. International Monetary Fund, 2016. "Thailand: 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Thailand," IMF Staff Country Reports 2016/139, International Monetary Fund.
    10. International Monetary Fund, 2016. "Japan: Selected Issues," IMF Staff Country Reports 2016/268, International Monetary Fund.
    11. PINSHI, Christian P., 2022. "Inflation-Forecast Targeting: A New Framework for Monetary Policy?," MPRA Paper 111709, University Library of Munich, Germany.
    12. Narayana Kocherlakota, 2016. "Rules versus Discretion: A Reconsideration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(2 (Fall)), pages 1-55.
    13. Vitor Gaspar & Maurice Obstfeld & Ratna Sahay & Douglas Laxton & Dennis P Botman & Kevin Clinton & Romain A Duval & Kotaro Ishi & Zoltan Jakab & Laura Jaramillo & Constant A Lonkeng Ngouana & Tommaso , 2016. "Macroeconomic Management When Policy Space is Constrained; A Comprehensive, Consistent and Coordinated Approach to Economic Policy," IMF Staff Discussion Notes 16/09, International Monetary Fund.

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