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This paper computes welfare maximizing Taylor-style interest rate rules, in a business cycle model of a small open economy. The model assumes staggered price setting and shocks to domestic productivity, to the world interest rate, to world inflation, and to the uncovered interest rate parity...
Persistent link: https://www.econbiz.de/10014120195
The most popular simple rule for the interest rate, due to Taylor, is meant to inform monetary policy in closed economies. On the other hand, its main open-economy alternative, Ball's rule based on a monetary conditions index (MCI), may perform poorly in the face of specific types of exchange...
Persistent link: https://www.econbiz.de/10014121370
This paper investigates the empirical relevance of a new framework for monetary policy analysis in which decision makers are allowed to weight differently positive and negative deviations of inflation and output from the target values. The specification of the central bank objective is general...
Persistent link: https://www.econbiz.de/10014108845
some assumptions about forward-looking behavior that are motivated by economic theory, we show that a plausible set of …
Persistent link: https://www.econbiz.de/10014134690
Taylor rules posit a linear relationship between the output gap, inflation, and short-term nominal interest rates. Previous work has shown that the relationship between these key economic variables as captured by the Taylor rule is quite robust both across countries and monetary policy regimes....
Persistent link: https://www.econbiz.de/10014138012
Discussions of monetary policy rules after the 2007-2009 recession highlight the potential ineffectiveness of a central bank's actions when the short-term interest rate under its control is limited by the zero lower bound. This perspective assumes, in a manner consistent with the canonical New...
Persistent link: https://www.econbiz.de/10012963170
Has the Federal Open Market Committee's policy rule changed in recent years? This is difficult to answer given the zero lower bound environment for the federal funds rate throughout late 2008 to 2015. This paper addresses the problem using policymakers' projections for the near horizon from 2012...
Persistent link: https://www.econbiz.de/10012963245
Macroeconomists are increasingly using nonlinear models to account for the effects of risk in the analysis of business cycles. In the monetary business cycle models widely used at central banks, an explicit recognition of risk generates a wedge between the inflation-target parameter in the...
Persistent link: https://www.econbiz.de/10012963934
We propose a new interest rate rule that implements the optimal equilibrium and eliminates all indeterminacy in a canonical New Keynesian model in which the zero lower bound on nominal interest rates (ZLB) is binding. The rule commits to zero nominal interest rates for a length of time that...
Persistent link: https://www.econbiz.de/10012948670
Interest rates are unreliable indicators of appropriate monetary policy; low nominal rates do not indicate easy money. This paper attempts to assess the stance of monetary policy without relying on interest rates. A new monetary policy rule is developed based on a forward-looking generalization...
Persistent link: https://www.econbiz.de/10012955481