scholarly journals Super-Inertial Interest Rate Rules Are Not Solutions of Ramsey Optimal Monetary Policy

2018 ◽  
Author(s):  
Jean-Bernard Chatelain ◽  
Kirsten Ralf
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Optimal Monetary Policy ◽  
Interest Rate Rules

OPTIMAL MONETARY POLICY FOR THE EMU ACCESSION COUNTRIES. A NEW KEYNESIAN APPROACH

2014 ◽  
Vol 19 (7) ◽  
pp. 1427-1475 ◽  
Author(s):  
Anna Lipińska
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Optimal Policy ◽  
Nominal Exchange Rate ◽  
Nominal Interest Rate ◽  
Output Gap ◽  
Optimal Monetary Policy ◽  
Accession Countries ◽  
Dynamic Stochastic ◽  
Maastricht Criteria

This paper uses a dynamic stochastic general equilibrium model of a two-sector small open economy to analyze how the Maastricht criteria modify a fully credible optimal monetary policy in the Economic and Monetary Union accession countries. We show that if the country is not constrained by the criteria, optimal policy should stabilize fluctuations in PPI inflation, in the aggregate output gap, and in the domestic and international terms of trade. The optimal policy constrained permanently by the Maastricht criteria is characterized by reduced variability of the nominal exchange rate, CPI inflation, and the nominal interest rate and by lower optimal targets for CPI inflation and nominal interest rate. This policy results in higher variability and nonzero means for both PPI inflation and output gap, thus leading to additional, but small, welfare costs compared with the unconstrained policy.

scholarly journals ROBUST MONETARY POLICY IN A NEW KEYNESIAN MODEL WITH IMPERFECT INTEREST RATE PASS-THROUGH

2015 ◽  
Vol 20 (6) ◽  
pp. 1504-1526 ◽  
Author(s):  
Rafael Gerke ◽  
Felix Hammermann
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Model Misspecification ◽  
New Keynesian ◽  
Optimal Monetary Policy ◽  
Loan Rate ◽  
Keynesian Model ◽  
Pass Through ◽  
Policy Shifts

We use robust control to study how a central bank in an economy with imperfect interest rate pass-through conducts monetary policy if it fears that its model could be misspecified. We find that, first, whether robust optimal monetary policy under commitment responds more cautiously or more aggressively depends crucially on the source of shock. Imperfect pass-through amplifies the robust policy. Second, if the central bank is concerned about uncertainty, it dampens volatility in the inflation rate preemptively but accepts higher volatility in the output gap and loan rate. However, for highly sticky loan rates, insurance against model misspecification becomes particularly pricy. Third, if the central bank fears uncertainty only in the IS equation or the loan rate equation, the robust policy shifts its concern for stabilization away from inflation.

Testing monetary policy optimality using volatility outcomes: a novel approach

2016 ◽  
Vol 16 (2) ◽  
Author(s):  
Federico Ravenna
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Optimal Policy ◽  
The United States ◽  
New Keynesian ◽  
Model Parameters ◽  
Dsge Models ◽  
Optimal Monetary Policy ◽  
Novel Approach ◽  
Interest Rate Volatility

AbstractWe propose a method to assess the efficiency of macroeconomic outcomes using the restrictions implied by optimal policy DSGE models for the volatility of observable variables. The method exploits the variation in the model parameters, rather than random deviations from the optimal policy. In the new Keynesian business cycle model this approach shows that optimal monetary policy imposes tighter restrictions on the behavior of the economy than is readily apparent. The method suggests that for the historical output, inflation and interest rate volatility in the United States over the 1984–2005 period to be generated by any optimal monetary policy with a high probability, the observed interest rate time series should have a 25% larger variance than in the data.

PARAMETER UNCERTAINTY AND NONLINEAR MONETARY POLICY RULES

2010 ◽  
Vol 15 (2) ◽  
pp. 184-200 ◽  
Author(s):  
Peter Tillmann
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Empirical Evidence ◽  
Parameter Uncertainty ◽  
Phillips Curve ◽  
Optimal Monetary Policy ◽  
Worst Case ◽  
Rate Adjustment ◽  
The Interest Rate

Empirical evidence suggests that the instrument rule describing the interest rate–setting behavior of the Federal Reserve is nonlinear. This paper shows that optimal monetary policy under parameter uncertainty can motivate this pattern. If the central bank is uncertain about the slope of the Phillips curve and follows a min–max strategy to formulate policy, the interest rate reacts more strongly to inflation when inflation is further away from target. The reason is that the worst case the central bank takes into account is endogenous and depends on the inflation rate and the output gap. As inflation increases, the worst-case perception of the Phillips curve slope becomes larger, thus requiring a stronger interest rate adjustment. Empirical evidence supports this form of nonlinearity for post-1982 U.S. data.

scholarly journals Interest-Rate Smoothing and Optimal Monetary Policy : A Review of Recent Empirical Evidence

1999 ◽  
Vol 1999 (39) ◽  
pp. 1-35 ◽  
Author(s):  
Brian Sack ◽  
◽  
Volker W. Wieland
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Empirical Evidence ◽  
Optimal Monetary Policy

scholarly journals Optimal Monetary Policy in a Currency Union With Interest Rate Spreads

2013 ◽  
Vol 2013 (150) ◽  
Author(s):  
Saroj Bhattarai ◽  
◽  
Jae Won Lee ◽  
Woong Yong Park ◽  
◽  
...  
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Currency Union ◽  
Optimal Monetary Policy ◽  
Interest Rate Spreads

Optimal Monetary Policy at the Zero-Interest-Rate Bound

2005 ◽  
Vol 37 (5) ◽  
pp. 813-835 ◽  
Author(s):  
Taehun Jung ◽  
Yuki Teranishi ◽  
Tsutomu Watanabe
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Optimal Monetary Policy

scholarly journals Optimal Monetary Policy in a Currency Union with Interest Rate Spreads

2013 ◽  
Author(s):  
Saroj Bhattarai ◽  
Jae Won Lee ◽  
Woong Yong Park
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Currency Union ◽  
Optimal Monetary Policy ◽  
Interest Rate Spreads

scholarly journals Key interest rate in optimal monetary policy in Ukraine

2020 ◽  
Vol 41 (45) ◽  
pp. 49-56
Author(s):  
Vitalii BONDARCHUK ◽  
◽  
Yuliya BOGOYAVLENSKA ◽  
Lyudmyla KALENCHUK ◽  
Kateryna SHYMANSKA ◽  
...  
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Significant Influence ◽  
Inflation Rate ◽  
Taylor Rule ◽  
Optimal Monetary Policy ◽  
Previous Period ◽  
National Bank ◽  
Gdp Gap

In the paper, the empirical examine of Taylor rule use in case of Ukraine has presented. The obtained results has shown that the most significant influence on interest rate makes inflation rate and interest rate in previous period. It had been found that 1% change of consumption prices and interest rate in previous period increases interest rate by 1,28 and 0,71% respectively. Instead 1% change in GDP gap causes only 0,04% change in interest rate. The obtained results has shown that 1% change of inflation gap provoke National Bank of Ukraine to increase interest rate by 0,8%.

scholarly journals An optimal control problem of monetary policy

2021 ◽  
Vol 26 (11) ◽  
pp. 5769
Author(s):  
Andrea Bacchiocchi ◽  
Germana Giombini
Keyword(s):  
Optimal Control ◽  
Monetary Policy ◽  
Interest Rate ◽  
Optimal Control Problem ◽  
Continuous Time ◽  
Phillips Curve ◽  
Optimal Monetary Policy ◽  
Trade Off ◽  
Long Run ◽  
The Interest Rate

<p style='text-indent:20px;'>This paper analyses an optimal monetary policy under a non-linear Phillips curve and linear GDP dynamics. A central bank controls the inflation and the GDP trends through the adjustment of the interest rate to prevent shocks and deviations from the long-run optimal targets. The optimal control path for the monetary instrument, the interest rate, is the result of a dynamic minimization problem in a continuous-time fashion. The model allows considering various economic dynamics ranging from hyperinflation to disinflation, sustained growth and recession. The outcomes provide useful monetary policy insights and reveal the dilemma between objectives faced by the monetary authority in trade-off scenarios.</p>

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