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An Inventory of Simple Monetary Policy Rules in a New Keynesian Macroeconomic Model

  • Thomas Lubik
  • Massimiliano Marzo

We derive necessary and suffcient conditions for simple monetary policy rules that guarantee equilibrium determinacy in the New Keynesian monetary model. Our modeling framework is derived from a fully specified optimization model that is still amenable to analytical characterisation. The monetary rules analyzed are variants of the basic Taylor rules ranging from simple inflation targeting (current, forward, backward), to the canonical Taylor rules with and without inertial nominal interest rate patterns. We establish that determinacy obtains for a wide range of policy parameters, especially when the monetary authority targets output and smoothes interest rates. Contrary to other results in the literature we do not find a case for super-inertial interest rate policy

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Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 500.

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Date of creation: Sep 2003
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Handle: RePEc:jhu:papers:500
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  16. Lars E. O. Svensson, 2003. "What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 426-477, June.
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  18. Charles T. Carlstrom & Timothy S. Fuerst, 2001. "Timing and real indeterminacy in monetary models," Working Paper 9910R, Federal Reserve Bank of Cleveland.
  19. Charles T. Carlstrom & Timothy S. Fuerst, 2000. "Forward-looking versus backward-looking Taylor rules," Working Paper 0009, Federal Reserve Bank of Cleveland.
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