Implementing optimal monetary policy: Objectives and rules
The inconsistency of optimal policy comes from inconsistency between the social loss function and the economic structure. Accordingly, this paper designs a central bank loss function, which proves consistent with the economic structure. Under the designed central bank loss function discretionary policy proves optimal for social welfare. Optimal discretionary policy emerges because the implied behavioral equation is identical with that under commitment to the social loss function. Consequently, this paper also designs policy rules. To some extent, policy rules appear more basic, flexible, and operational than social and central bank loss functions, but the social loss function serves as an ultimate objective and the central bank loss function explicitly identifies the attainable targets and appropriate weight to achieve the social optimum.
Year of publication: |
2010
|
---|---|
Authors: | Yuan, Huiping ; Miller, Stephen M. |
Published in: |
Economic Modelling. - Elsevier, ISSN 0264-9993. - Vol. 27.2010, 3, p. 737-745
|
Publisher: |
Elsevier |
Keywords: | Optimal policy Central bank loss functions Policy rules |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Consistent Targets and Optimal Monetary Policy: Conservative Central Banker Redux
Miller, Stephen M., (2005)
-
Designing Central Bank Loss Functions
Yuan, Huiping, (2010)
-
Target Controllability and Time Consistency: Complement to the Tinbergen Rule
Yuan, Huiping, (2014)
- More ...