Robust Monetary Policy Rules With Unknown Natural Rates
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Robust Monetary Policy With Imperfect Knowledge
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Author : Athanasios Orphanides
language : en
Publisher:
Release Date : 2007
Robust Monetary Policy With Imperfect Knowledge written by Athanasios Orphanides and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with Monetary policy categories.
We examine the performance and robustness properties of monetary policy rules in an estimated macroeconomic model in which the economy undergoes structural change andwhere private agents and the central bank possess imperfect knowledge about the true structure of the economy. Policymakers follow an interest rate rule aiming to maintain price stability and to minimize fluctuations of unemployment around its natural rate but areuncertain about the economy's natural rates of interest and unemployment and how private agents form expectations. In particular, we consider two models of expectations formation :rational expectations and learning. We show that in this environment the ability to stabilize the real side of the economy is significantly reduced relative to an economy under rational expectations with perfect knowledge. Furthermore, policies that would be optimal under perfect knowledge can perform very poorly if knowledge is imperfect. Efficient policies that take account of private learning and misperceptions of natural rates call for greater policy inertia, a more aggressive response to inflation, and a smaller response to the perceived unemployment gap than would be optimal if everyone had perfect knowledge of the economy. We show that such policies are quite robust to potential misspecification of private sector learning and the magnitude of variation in natural rates.
Monetary Policy Rules
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Author : John B. Taylor
language : en
Publisher: University of Chicago Press
Release Date : 2007-12-01
Monetary Policy Rules written by John B. Taylor and has been published by University of Chicago Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007-12-01 with Business & Economics categories.
This timely volume presents the latest thinking on the monetary policy rules and seeks to determine just what types of rules and policy guidelines function best. A unique cooperative research effort that allowed contributors to evaluate different policy rules using their own specific approaches, this collection presents their striking findings on the potential response of interest rates to an array of variables, including alterations in the rates of inflation, unemployment, and exchange. Monetary Policy Rules illustrates that simple policy rules are more robust and more efficient than complex rules with multiple variables. A state-of-the-art appraisal of the fundamental issues facing the Federal Reserve Board and other central banks, Monetary Policy Rules is essential reading for economic analysts and policymakers alike.
Simple Rules For Monetary Policy
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Author : John Carroll Williams
language : en
Publisher:
Release Date : 1999
Simple Rules For Monetary Policy written by John Carroll Williams and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with Monetary policy categories.
Avoiding Dark Corners
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Author : Ali Alichi
language : en
Publisher: International Monetary Fund
Release Date : 2015-06-24
Avoiding Dark Corners written by Ali Alichi and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-06-24 with Business & Economics categories.
The Fed has taken several steps towards strengthening its monetary framework over the past several years. Those steps have supported the Fed’s efforts to stimulate the economy through forward guidance despite being constrained by having policy rates at zero. We show that an optimal control approach to monetary policy, which includes the publication of a baseline forecast and a description of the uncertainties around that outlook, combined with an improvement in the Fed’s communications toolkit, could further enhance the effectiveness of Fed policy. In the current conjuncture, such a risk management approach to monetary policy would result in both a later liftoff of policy rates and a modest, but planned, overshooting of inflation.
Robust Monetary Policy Rules With Unknown Natural Rates
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Author : Athanasios Orphanides
language : en
Publisher:
Release Date : 2003
Robust Monetary Policy Rules With Unknown Natural Rates written by Athanasios Orphanides and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with Interest rates categories.
Monetary Policy Mistakes And The Evolution Of Inflation Expectations
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Author : Athanasios Orphanides
language : en
Publisher: DIANE Publishing
Release Date : 2010
Monetary Policy Mistakes And The Evolution Of Inflation Expectations written by Athanasios Orphanides and has been published by DIANE Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with Business & Economics categories.
What monetary policy framework, if adopted by the Federal Reserve, would have avoided the Great Inflation of the 1960s and 1970s? The authors use counterfactual simulations of an estimated model of the U.S. economy to evaluate alternative monetary policy strategies. The authors document that policymakers at the time both had an overly optimistic view of the natural rate of unemployment and put a high priority on achieving full employment. They show that in the presence of realistic informational imperfections and with an emphasis on stabilizing economic activity, an optimal control approach would have failed to keep inflation expectations well anchored, resulting in highly volatile inflation during the 1970s. Charts and tables.
Robust Versus Optimal Rules In Monetary Policy
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Author : International Monetary Fund
language : en
Publisher: International Monetary Fund
Release Date : 2004-06-01
Robust Versus Optimal Rules In Monetary Policy written by International Monetary Fund and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004-06-01 with Business & Economics categories.
We provide a framework for analyzing the choice between optimal and robust monetary policy rules in the presence of paradigm uncertainty. We first discuss the conditions on uncertainty that render a robust rule preferable to an optimal rule. Second, we show how the degree of risk aversion of the policymaker increases the region in which the robust rule is preferred.
Monetary Economics
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Author : Steven Durlauf
language : en
Publisher: Springer
Release Date : 2016-04-30
Monetary Economics written by Steven Durlauf and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-04-30 with Performing Arts categories.
Specially selected from The New Palgrave Dictionary of Economics 2nd edition, each article within this compendium covers the fundamental themes within the discipline and is written by a leading practitioner in the field. A handy reference tool.
Monetary Policy With Imperfect Knowledge
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Author : Athanasios Orphanides
language : en
Publisher:
Release Date : 2005
Monetary Policy With Imperfect Knowledge written by Athanasios Orphanides and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Monetary policy categories.
We examine the performance and robustness of monetary policy rules when the central bank and the public have imperfect knowledge of the economy and continuously update their estimates of model parameters. We find that versions of the Taylor rule calibrated to perform well under rational expectations with perfect knowledge perform very poorly when agents are learning and the central bank faces uncertainty regarding natural rates. In contrast, difference rules, in which the change in the interest rate is determined by the inflation rate and the change in the unemployment rate, perform well when knowledge is both perfect and imperfect.
Designing A Simple Loss Function For Central Banks
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Author : Davide Debortoli
language : en
Publisher: International Monetary Fund
Release Date : 2017-07-21
Designing A Simple Loss Function For Central Banks written by Davide Debortoli and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-07-21 with Business & Economics categories.
Yes, it makes a lot of sense. This paper studies how to design simple loss functions for central banks, as parsimonious approximations to social welfare. We show, both analytically and quantitatively, that simple loss functions should feature a high weight on measures of economic activity, sometimes even larger than the weight on inflation. Two main factors drive our result. First, stabilizing economic activity also stabilizes other welfare relevant variables. Second, the estimated model features mitigated inflation distortions due to a low elasticity of substitution between monopolistic goods and a low interest rate sensitivity of demand. The result holds up in the presence of measurement errors, with large shocks that generate a trade-off between stabilizing inflation and resource utilization, and also when ensuring a low probability of hitting the zero lower bound on interest rates.