The optimal monetary policy rule under the non-negativity constraint on nominal interest rates

2005 ◽  
Vol 89 (1) ◽  
pp. 95-100 ◽  
Author(s):  
Tomohiro Sugo ◽  
Yuki Teranishi
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Optimal Monetary Policy ◽  
Policy Rule ◽  
Nominal Interest Rates ◽  
Monetary Policy Rule

Monetary-Policy Rule as a Bridge: Predicting Inflation without Predictive Regressions

2018 ◽  
Vol 53 (6) ◽  
pp. 2559-2586 ◽  
Author(s):  
Jian Hua ◽  
Liuren Wu
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Historical Analysis ◽  
Policy Rule ◽  
Estimation Errors ◽  
Predictive Regressions ◽  
Inflation Rates ◽  
Monetary Policy Rule ◽  
Out Of Sample

A major issue with predicting inflation rates using predictive regressions is that estimation errors can overwhelm the information content. This article proposes a new approach that uses a monetary-policy rule as a bridge between inflation rates and short-term interest rates and relies on the forward-interest-rate curve to predict future interest-rate movements. The 2-step procedure estimates the predictive relation not through a predictive regression but far more accurately through the contemporaneous monetary-policy linkage. Historical analysis shows that the approach outperforms random walk out of sample by 30%–50% over horizons from 1 to 5 years.

scholarly journals Poole’s Stochastic IS-LM Model and Optimal Monetary Policy Rule: A Framework for Graduate Teaching

2012 ◽  
Vol 3 (4) ◽  
pp. 127-131
Author(s):  
Amaresh Das
Keyword(s):  
Monetary Policy ◽  
Optimal Monetary Policy ◽  
Policy Rule ◽  
Graduate Teaching ◽  
Monetary Policy Rule

Our comment revisits Poole’s popular exposition of the IS-LM model and proceeds to extend the discussion to best derive the optimal monetary policy rule. The key assumption is that the economy is closed with no transactions in goods and capital. This will help us better understand the basic working of the macro economy.

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