This paper examines the friction between simplicity and optimality in the design of monetary policy rules. With complete information, rational expectations, and full optimization, the correct answer to the question of the best rule is trite: optimal control is optimal. However, rational...

The normal assumption of full information is dropped and the choice of monetary policy rules is instead examined when private agents must learn the rule. A small, forward-looking model is estimated and stochastic simulations conducted with agents using discounted least squares to learn of a...

The monetary policy rules that are widely discussed--notably the Taylor rule--are remarkable for their simplicity. One reason for the apparant preference for simple ad hoc rules over optimal rules might be the assumption of full information maintained in the computation of an optimal rule....

This is a technical appendix to a group of papers being prepared, one of which is "Monetary Policy Rules in a Small Forward-Looking Macro Model." The present paper, the first of several, attempts to quantify the relative advantage of simple, Taylor-style interest rate rules vs. feedback rules...

This paper considers the "Lucas"-critique issue of how the indicator role of auction prices is affected when the central bank attempts to exploit the correlation between auction prices and inflation. This question is examined using a simple macroeconomic model with rational expectations (perfect...

This paper analyses the mechanics of simple interest rate rules for two models----one with backward and the other with forward looking, rational expectations. The approach is to consider policy when faced with a specific task reducing inflation in a stabilizing manner. The two models are: (i)...

An issue with monetary policy rules to guide inflation is the indeterminacy of the price level. In the context of a traditional backward-looking and a modern forward-looking New-Keynesian Phillips curve, this paper examines the dynamic and steady state properties of interest rate rules anchored...

This paper examines the properties of interest rate rules aimed at controlling aggregate price inflation. Policies are compared in two models having either flexible or sticky inflation The latter is assumed to derive from a traditional, adaptive-expectations augmented Phillips curve. The...