Monetary Policy Rules Based on Real-Time Data

Monetary Policy Rules Based on Real-Time Data

This paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules. Using Taylor’s rule as an example, I demonstrate that real-time policy recommendations differ considerably from those obtained with ex post revised data. Further, estimated policy reaction functions based on ex post revised data provide misleading de...

Introductory Remarks on Monetary Policy Rules

Adaptive Learning, Forecast-Based Instrument Rules and Monetary Policy

This paper argues that recently popular forecast-based instrument rules for monetary policy may fail to stabilize economic ‡uctuations. In a New Keynesian model of output gap and in‡ation determination in which private agents face multi-period decision problems, but have non-rational expectations and learn over time, if the monetary authority adopts a forecast-based instrument rule and responds...

Monetary Policy and Real Stabilization

During the past two decades, maintenance of low inflation, “price stability,” has become the principal focus of central banks around the world. At the same time, the view has emerged that monetary policy is better suited than fiscal policy for short-run stabilization purposes. This paper examines to what extent monetary policy can be directed at both “monetary stabilization,” stabilizing inflat...

Frequency Dependence in a Real-Time Monetary Policy Rule

We estimate a monetary policy rule for the US allowing for possible frequency dependence i.e., allowing the central bank to respond differently to persistent innovations than to transitory innovations, in both the real-time unemployment rate and the real-time inflation rate. The method is flexible, and requires no strong a priori assumptions on the pattern of frequency dependence or on the natu...