scholarly journals Debt Stabilization Bias and the Taylor Principle: Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence

2007 ◽  
Author(s):  
Sven Jari Stehn ◽  
David Vines
Keyword(s):  
Optimal Policy ◽  
Government Debt ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Inflation Persistence ◽  
Keynesian Model

scholarly journals CONDI: A Cost-of-Nominal-Distortions Index

2011 ◽  
Vol 3 (3) ◽  
pp. 53-91 ◽  
Author(s):  
Stefano Eusepi ◽  
Bart Hobijn ◽  
Andrea Tambalotti
Keyword(s):  
Optimal Policy ◽  
Inflation Targeting ◽  
Price Index ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Price Stickiness ◽  
Welfare Costs ◽  
Keynesian Model ◽  
Welfare Losses

We construct a PCE-based price index whose weights minimize the welfare costs of nominal distortions: a cost-of-nominal-distortions index. We compute these weights in a multi-sector New Keynesian model, calibrated to match US data on price stickiness, labor shares, and inflation across sectors. The CONDI weights mostly depend on price stickiness. Moreover, CONDI stabilization leads to negligible welfare losses compared to the optimal policy and is better approximated by core rather than headline inflation targeting. An even better approximation can be obtained with an adjusted core index. (JEL C14, E12, E25, E31, E52).

scholarly journals RAMSEY OPTIMAL POLICY IN THE NEW-KEYNESIAN MODEL WITH PUBLIC DEBT

2021 ◽  
pp. 1-27
Author(s):  
Jean-Bernard Chatelain ◽  
Kirsten Ralf
Keyword(s):  
Public Debt ◽  
Optimal Policy ◽  
Multiple Equilibria ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Keynesian Model ◽  
Simple Rules ◽  
Debt Dynamics ◽  
Level Versus ◽  
The Interest Rate

In the discrete-time new-Keynesian model with public debt, Ramsey optimal policy eliminates the indeterminacy of simple-rules multiple equilibria between the fiscal theory of the price level versus new-Keynesian versus an unpleasant equilibrium. If public debt volatility is taken into account into the loss function, the interest rate responds to public debt besides inflation and output gap. Else, the Taylor rule is identical to Ramsey optimal policy when there is zero public debt. The optimal fiscal-rule parameter implies the local stability of public-debt dynamics (“passive” fiscal policy).

scholarly journals WOODFORD'S APPROACH TO ROBUST POLICY ANALYSIS IN A LINEAR-QUADRATIC FRAMEWORK

2018 ◽  
Vol 23 (5) ◽  
pp. 1895-1920 ◽  
Author(s):  
Hyosung Kwon ◽  
Jianjun Miao
Keyword(s):  
Monetary Policy ◽  
Optimal Policy ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Perfect Equilibrium ◽  
Optimal Monetary Policy ◽  
Linear Quadratic ◽  
Keynesian Model ◽  
Markov Perfect ◽  
Time Invariant

This paper extends Woodford's approach to the robustly optimal monetary policy to a general linear quadratic framework. We provide algorithms to solve for a time-invariant linear robustly optimal policy in a timeless perspective and for a time-invariant linear Markov perfect equilibrium under discretion. We apply our methods to a New Keynesian model of monetary policy with persistent cost-push shocks and inflation persistence. We find that the robustly optimal commitment inflation is less responsive to a cost-push shock when the shock is more persistent and that the robustly optimal discretionary policy is more responsive to lagged inflation when inflation is more persistent.

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