Monetary Policy Frameworks and Real Equilibrium Determinacy

TY - UNPB

T1 - Monetary Policy Frameworks and Real Equilibrium Determinacy

AU - Jensen, Henrik

N1 - Jel Classification: E42; E52; F58

PY - 2002/2

Y1 - 2002/2

N2 - In a simple "prototype" model of monetary policymaking, I examine the issue of real equilibrium determinacy under targeting and instrument rules. The former framework involves minimization of a loss function (under discretion or commitment), whereas the latter involves commitment to an interest rate rule. While instrument rules only lead to determinacy under certain conditions, the targeting rules under consideration always secure determinacy. Within an extended model, I argue that econometric estimations of nominal interest rate response functions may tell little about the economy's stability properties. Instead, they could reveal whether targeting-rule based policy is performed under discretion or commitment

AB - In a simple "prototype" model of monetary policymaking, I examine the issue of real equilibrium determinacy under targeting and instrument rules. The former framework involves minimization of a loss function (under discretion or commitment), whereas the latter involves commitment to an interest rate rule. While instrument rules only lead to determinacy under certain conditions, the targeting rules under consideration always secure determinacy. Within an extended model, I argue that econometric estimations of nominal interest rate response functions may tell little about the economy's stability properties. Instead, they could reveal whether targeting-rule based policy is performed under discretion or commitment

M3 - Working paper

BT - Monetary Policy Frameworks and Real Equilibrium Determinacy

CY - University of Copenhagen

ER -