DO HETEROGENEOUS EXPECTATIONS CONSTITUTE A CHALLENGE FOR POLICY INTERACTION?

Yes, indeed; at least for macroeconomic policy interaction. We examine a Neo-Classical economy and provide the conditions for policy arrangements to successfully stabilize the economy when agents have either rational or adaptive expectations. For a contemporaneous-data monetary policy rule, the monetarist solution is unique and stationary under a passive fiscal/active monetary policy regime if monetary policy appropriately incorporates expectational heterogeneity. In contrast, the active fiscal/passive monetary policy regime's fiscalist solution is prone to explosiveness due to empirically plausible expectational heterogeneity. Nevertheless, this can be a well-defined, rather orthodox equilibrium. For operational monetary policy rules, only the results for the fiscalist solution prevail. Moreover, our results are plausible from an adaptive learning viewpoint.

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Taking the European Central Bank to the Data

Zeitschrift für Wirtschaftspolitik ◽

10.1515/zfwp-2005-0106 ◽

2005 ◽

Vol 54 (1) ◽

Cited By ~ 1

Author(s):

Ralf Fendel ◽

Michael Frenkel

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Target Range ◽

Policy Rule ◽

Real Activity ◽

Policy Rules ◽

Monetary Policy Rules ◽

Monetary Policy Rule ◽

Inflation Targets ◽

The Interest Rate

AbstractThe paper discusses the conduct of monetary policy of the ECB. We estimate monetary policy rules for the sample period 1999 through 2004. The results are in line with the change of the strategy the ECB recently announced. The implied inflation targets that are extracted from the regressions are close to the target range that the ECB has formulated. We also find that the interest rate setting behavior of the ECB is affected by M3 growth as a leading indicator for future inflation and real activity but not as an independent argument of the monetary policy rule. Furthermore, we validate the ECB’s announcement of no explicit exchange rate target beside the fact that the exchange rate serves as an indicator for future inflation.

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Monetary policy rule for Poland – results for various specifactions

Oeconomia Copernicana ◽

10.12775/oec.2011.010 ◽

2011 ◽

Vol 2 (3) ◽

pp. 5-21 ◽

Cited By ~ 2

Author(s):

Paweł Baranowski

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

Monetary Authority ◽

Output Gap ◽

Reaction Function ◽

Policy Rule ◽

Policy Rules ◽

Monetary Policy Rules ◽

Monetary Policy Rule ◽

The Interest Rate

The aim of the paper is to analyse monetary policy rules for Poland. We estimate models based on the proposition of Taylor (1993), augmented with interest rate smoothing. We deal with the case of instantaneous as well as forward-looking relationship between interest rate and inflation. In the latter case, the proposition of data-rich reaction function (Bernanke and Boivin, 2003) was also considered. The evidence show that Polish monetary authority reaction to inflation is strong, contrary to the output gap. In addition, we found strong interest smoothing, which implies time-distributed response of the interest rate.

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A RECONSIDERATION OF THE DOCTRINAL FOUNDATIONS OF MONETARY POLICY RULES: FISHER VERSUS CHICAGO

Journal of the History of Economic Thought ◽

10.1017/s1053837219000622 ◽

2021 ◽

Vol 43 (1) ◽

pp. 55-82

Author(s):

George S. Tavlas

Keyword(s):

Monetary Policy ◽

Price Level ◽

Policy Instruments ◽

Policy Instrument ◽

Superior Performance ◽

Policy Uncertainty ◽

Direct Link ◽

Policy Rule ◽

Policy Rules ◽

Monetary Policy Rules

There has long been a presumption that the price-level stabilization frameworks of Irving Fisher and Chicagoans Henry Simons and Lloyd Mints were essentially equivalent. I show that there were subtle, but important, differences in the rationales underlying the policies of Fisher and the Chicagoans. Fisher’s framework involved substantial discretion in the setting of the policy instruments; for the Chicagoans the objective of a policy rule was to tie the hands of the authorities in order to reduce discretion and, thus, monetary policy uncertainty. In contrast to Fisher, the Chicagoans provided assessments of the workings of alternative rules, assessed various criteria—including simplicity and reduction of political pressures—in the specification of rules, and concluded that rules would provide superior performance compared with discretion. Each of these characteristics provided a direct link to the rules-based framework of Milton Friedman. Like Friedman’s framework, Simons’s preferred rule targeted a policy instrument.

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A Review of Monetary Policy Rules

Journal of Economic Literature ◽

10.1257/jel.39.2.562 ◽

2001 ◽

Vol 39 (2) ◽

pp. 562-566 ◽

Cited By ~ 8

Author(s):

Christopher A Sims

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

Taylor Rule ◽

Real Output ◽

Policy Rule ◽

Policy Rules ◽

Monetary Policy Rules ◽

John Taylor

This article reviews Monetary Policy Rules, edited by John Taylor. The book evaluates the Taylor rule, a policy rule that specifies changes in the central bank's interest rate according to what is happening to two variables, real output and inflation. Questions are raised about (a) how well the models fit the data; (b) the validity of the assumption that there has been clear improvement in monetary policy; and (c) the rule's microfoundations.

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Monetary policy rules, asset prices and adaptive learning

Journal of Financial Stability ◽

10.1016/j.jfs.2013.04.002 ◽

2013 ◽

Vol 9 (3) ◽

pp. 251-258 ◽

Cited By ~ 1

Author(s):

Vicente da Gama Machado

Keyword(s):

Monetary Policy ◽

Adaptive Learning ◽

Asset Prices ◽

Policy Rules ◽

Monetary Policy Rules

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A Reconsideration of the Doctrinal Foundations of Monetary-Policy Rules: Fisher versus Chicago

10.31219/osf.io/ap7w9 ◽

2021 ◽

Author(s):

George S. Tavlas

Keyword(s):

Monetary Policy ◽

Price Level ◽

Policy Instruments ◽

Policy Instrument ◽

Superior Performance ◽

Policy Uncertainty ◽

Direct Link ◽

Policy Rule ◽

Policy Rules ◽

Monetary Policy Rules

There has long been a presumption that the price-level-stabilization frameworks of Irving Fisher and Chicagoans Henry Simons and Lloyd Mints were essentially equivalent. I show that there were subtle, but important, differences in the rationales underlying the policies of Fisher and the Chicagoans. Fisher’s framework involved substantial discretion in the setting of the policy instruments; for the Chicagoans the objective of a policy rule was to tie the hands of the authorities in order to reduce discretion and, thus, monetary-policy uncertainty. In contrast to Fisher, the Chicagoans provided assessments of the workings of alternative rules, assessed various criteria -- including simplicity and reduction of political pressures -- in the specification of rules, and concluded that rules would provide superior performance compared with discretion. Each of these characteristics provided a direct link to the rules-based framework of Milton Friedman. Like Friedman’s framework, Simons’s preferred rule targeted a policy instrument.

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Synergies Between Monetary and Macroprudential Policies in Thailand

IMF Working Papers ◽

10.5089/9781513537023.001 ◽

2020 ◽

Vol 20 (83) ◽

Author(s):

Ichiro Fukunaga ◽

Manrique Saenz

Keyword(s):

Monetary Policy ◽

General Equilibrium ◽

Dynamic Stochastic General Equilibrium ◽

Policy Rule ◽

Macroprudential Policy ◽

Policy Rules ◽

Macroprudential Policies ◽

Wide Range ◽

Monetary Policy Rule ◽

Dynamic Stochastic

A dynamic stochastic general equilibrium (DSGE) model tailored to the Thai economy is used to explore the performance of alternative monetary and macroprudential policy rules when faced with shocks that directly impact the financial cycle. In this context, the model shows that a monetary policy focused on its traditional inflation and output objectives accompanied by a well targeted counter-cyclical macroprudential policy yields better macroeconomic outcomes than a lean-against-the-wind monetary policy rule under a wide range of assumptions.

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Changing Policy Rule Parameters Implied by the Median SEP Paths

Economic Commentary (Federal Reserve Bank of Cleveland) ◽

10.26509/frbc-ec-201906 ◽

2019 ◽

pp. 1-7 ◽

Cited By ~ 1

Author(s):

Edward S. Knotek

Keyword(s):

Monetary Policy ◽

Open Market ◽

Policy Rule ◽

Economic Variables ◽

Federal Funds ◽

Federal Funds Rate ◽

Policy Rules ◽

Monetary Policy Rules ◽

Over Time

This Commentary estimates the implied parameters of simple monetary policy rules using the median paths for the federal funds rate and other economic variables provided in the Federal Open Market Committee's Summary of Economic Projections (SEP). The implied policy rule parameters appear to have changed over time, as the federal funds rate projections have become less responsive to the unemployment gap. This finding could reflect changes in policymakers' preferences, uncertainty over other aspects of the policy rule, or limitations of estimating simple monetary policy rules from the median SEP paths.

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MEKANISME PENGENDALIAN MONETER DENGAN INFLASI SEBAGAI SASARAN TUNGGAL

Buletin Ekonomi Moneter dan Perbankan ◽

10.21098/bemp.v2i4.282 ◽

2003 ◽

Vol 2 (4) ◽

pp. 68-122

Author(s):

Erwin Haryono ◽

Wahyu Agung Nugroho ◽

Wahyu Pratomo

Keyword(s):

Monetary Policy ◽

Taylor Rule ◽

Policy Rule ◽

Policy Rules ◽

Intermediate Target ◽

Monetary Policy Rules

Sementara diskusi teoritis tentang mekanisme transmisi kebijakan moneter belum konklusif, studi ini menyarankan perumusan kebijakan moneter untuk mencapai sasaan tunggal inflasi berdasarkan transmisi suku bunga. Dalam hal ini, suku bunga jangka pendek berfungsi sebagai target operasional kebijakan moneter yang diharapkan dapat mempengaruhi agregat demand, untuk selanjutnya mempengaruhi pencapaian sasaran inflasi. Selain itu, perubahan suku bunga juga dapat melewati jalur nilai tukar dan ekspektasi masyarakat sebelum akhirnya mempengaruhi inflasi. Tidak seperti kerangka kebijakan moneter melalui jalur agregat moneter, kerangka ini tidak secara eksplisit memasukan fungsi intermediate target. Sebagai penggantinya, beragam information variables berfungsi sebagai indikator tekanan inflasi.Sebagai acuan bagi kebijakan moneter, yaitu bagaimana suku bunga jangka pendek harus disesuaikan untuk mencapai sasaran inflasi, disarankan penggunaan monetary policy rules yang dikembangkan dari Taylor rule dengan melakukan beberapa penyesuaian. Untuk hal ini, diperlukan penelitian tersendiri dengan mengakomodasi karakteristik yang relevan untuk kasus Indonesia. Namun, dengan terdapatnya unsur ketidakpastian dalam mekanisme transmisi, penggunaan policy rule tersebut tidak dimaksudkan untuk digunakan secara kaku (strict). Dalam hal ini, masih tersedia ruang bagi kebijakan yang bersifat discretionary, yaitu dengan melakukan assesment atas informasi yang diperoleh dari berbagai information variables.

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Evaluating the welfare aspects of the simple monetary ruls for Iran

Economic Annals ◽

10.2298/eka1506141k ◽

2015 ◽

Vol 60 (206) ◽

pp. 141-166

Author(s):

Mohsen Khyareh ◽

Vahid Omran ◽

Mohammad Ehsani

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Welfare Loss ◽

Dsge Models ◽

Impulse Response Functions ◽

Policy Rule ◽

Policy Rules ◽

Monetary Policy Rules ◽

Dynamic Stochastic ◽

Monetary Rules

This paper following a monetary growth rate rule aims to compare the properties of different monetary policy rules in Iran. In that regards, the paper draws on the New Keynesian Dynamic Stochastic General Equilibrium (DSGE) models. Within this framework, we rank the different policy rules based on the Impulse response Functions, the volatility of key macroeconomic variables and the welfare loss function. The paper concludes that the effects of alternative monetary rules depend on what shocks affect the economy, the exchange rate regime, and the choice of inflation index. When the economy experiences productivity shocks, domestic iflation targeting is welfare-superior to other monetary rules. However, in the case of other shocks except productivity shock a managed exchange rate is the best policy rule. Finally, the results of welfare loss of alternative monetary policy rules allowed noticing the nature of the shocks affecting the economy dictate the implication and choice of the best monetary policy rule.

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