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Optimal Advice for Monetary Policy

Author

Listed:
  • Susanto Basu
  • Miles S. Kimball
  • N. Gregory Mankiw
  • David N. Weil

Abstract

This paper addresses the issue of how to give optimal advice about monetary policy when it is known that the advice may not be heeded. We examine a simple macroeconomic model in which monetary policy has the ability to stabilize output by offsetting exogenous shocks to aggregate demand. The optimal policy rule for such a model is easily derived. But an adviser who knows that his advice may not be followed should not recommend the optimal policy rule. This is true because, in giving activist advice, such an adviser increases uncertainty about what monetary policy will be followed. We solve for the rule that such an adviser should use in giving advice.

Suggested Citation

  • Susanto Basu & Miles S. Kimball & N. Gregory Mankiw & David N. Weil, 1989. "Optimal Advice for Monetary Policy," NBER Working Papers 3054, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3054
    Note: EFG ME
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Miles's Best 7 "Save-the-World" Posts, as of July 7, 2012
      by in Confessions of a Supply-Side Liberal on 2012-07-08 17:21:00

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    Cited by:

    1. Martin Mosler & Niklas Potrafke & Markus Reischmann, 2019. "How to Handle the Fiscal Crisis in Greece: Empirical Evidence Based on a Survey of Economic Experts," Fiscal Studies, John Wiley & Sons, vol. 40(3), pages 375-399, September.

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