Optimal Monetary Policy Under Heterogeneous Beliefs of the Central Bank and the Public PDF Download
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Author: Alex Ilek
Publisher:
ISBN:
Category : Banks and banking, Central
Languages : en
Pages : 39
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Author: Alex Ilek
Publisher:
ISBN:
Category : Banks and banking, Central
Languages : en
Pages : 39
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Author: David Finck
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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We use a New Keynesian model that features rational and non-rational households. Assuming that both the fraction of rational households and the expectations formation process are uncertain from the perspective of the central bank, we derive robust optimal discretionary monetary policy in a simple min-max framework where the central bank plays a zero-sum game versus a fictitious, malevolent evil agent. We show that the central bank is able to improve welfare if it accounts for uncertainty while the model is being distorted. Even if the central bank accounts for the worst possible outcomes while the model is being undistorted, the central bank can still reduce the welfare loss by implementing a more aggressive targeting rule that favorably affects the inflation-output stabilization trade-off.
Author: Richard T. Froyen
Publisher: Edward Elgar Publishing
ISBN: 1847208649
Category : Business & Economics
Languages : en
Pages : 341
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Froyen and Guender have provided a thorough and careful analysis of optimal monetary policy over most of the range of theoretical models that have been used in modern macroeconomics. By providing a comprehensive and clear comparative framework they will help the student of monetary policy understand why there have been conflicting views of what policy makers should do. Central Banking In Optimal Monetary Policy Under Uncertainty, academicians and economists Richard T. Froyen and Alfred V. Guender have collaborated on presenting an informed and informative survey of optimal monetary policy literature arising during the 1970s and 1980s as a ground work for understanding current market and other economic influences on such germane issues as discretion versus commitment, target versus instrument rules, and the delegation of policy making authority within the private and public sectors. With meticulous attention to scholarship and objectivity. . . Optimal Monetary Policy Under Uncertainty is a thoughtful and thought-provoking body of work that is very strongly recommended for professional, academic, corporate and governmental economic reference collections and supplemental reading lists. Midwest Book Review Recently there has been a resurgence of interest in the study of optimal monetary policy under uncertainty. This book provides a thorough survey of the literature that has resulted from this renewed interest. The authors ground recent contributions on the science of monetary policy in the literature of the 1970s, which viewed optimal monetary policy as primarily a question of the best use of information, and studies in the 1980s that gave primacy to time inconsistency problems. This broad focus leads to a better understanding of current issues such as discretion versus commitment, target versus instrument rules, and the merits of delegation of policy authority. Casting a wide net, the authors survey the recent literature on the New Keynesian approach to optimal monetary policy in the context of the earlier literature. They emphasize the relationship between policy decisions and the information set available to the policymaker, a central focus of the earlier literature, obscured in much recent work. Optimal policy questions are considered in open as well as closed economy models and the often confusing terminology in the literature is sorted and clarified. Questions are considered within easily analysed models and the authors clearly show why these models lead to different (or equivalent) policy conclusions. Recent policy issues such as desirability of inflation targeting and the relative merits of target versus instrument rules are covered in detail. Economists in academia and in policymaking organizations who want to learn about recent developments in the area of optimal monetary policy, as well as graduate and advanced undergraduate students in macroeconomic and monetary economics, will find this volume a clear and thorough examination of the topic.
Author: Maral Shamloo
Publisher: International Monetary Fund
ISBN: 1451962649
Category : Business & Economics
Languages : en
Pages : 37
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In this paper I study the effect of imperfect central bank commitment on inflationary outcomes. I present a model in which the monetary authority is a committee that consists of members who serve overlapping, finite terms. Older and younger generations of Monetary Policy Committee (MPC) members decide on policy by engaging in a bargaining process. I show that this setup gives rise to a continuous measure of the degree of monetary authority's commitment. The model suggests that the lower the churning rate or the longer the tenure time, the closer social welfare will be to that under optimal commitment policy.
Author: Ricardo Cavaco Nunes
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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We consider a heterogenous expectations model where some agents are adaptive learners while others are rational. We consider three optimal monetary policy rules when the central bank either does not influence expectations or does influence expectations of learners or does influence expectations of learners and rational agents. We analyze a disinflation episode since this is a relevant policy setting to compare our rules. We find that there are non-negligible benefits from actively influencing expectations. Finally, we consider that the central bank may have wrong beliefs about the proportion of learners in the economy. We also find that these rules are safe to implement even when the central bank has misspecified beliefs.
Author: Niels-Jakob Harbo Hansen
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Author: Takeshi Kimura
Publisher:
ISBN:
Category : Monetary policy
Languages : en
Pages : 70
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Author: Seunghyeon Lee
Publisher:
ISBN:
Category :
Languages : ko
Pages : 0
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English Abstract: We study optimal monetary policy in a multi-sector economy where consumption baskets (and hence price indices) are heterogeneous across households. Incorporating consumption basket heterogeneity reveals new redistributive channels for monetary policy, calling for the central bank to address distributional inefficiencies on top of those arising from nominal distortions. We find that optimal monetary policy in this environment (i) targets non-zero output gaps, and (ii) is redistributive in favor of the (borrowing-constrained) poor, by targeting an inflation measure that overweighs the consumption baskets of the poor compared to a measure that solely responds to price stickiness. A policy that neglects heterogeneous consumption baskets suboptimally benefits the rich at the cost of the poor.
Author: Davide Debortoli
Publisher: International Monetary Fund
ISBN: 1484311752
Category : Business & Economics
Languages : en
Pages : 56
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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.
Author: A. Robert Nobay
Publisher:
ISBN:
Category : Banks and banking, Central
Languages : en
Pages : 14
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