U.S. Monetary Policy: A View from Macro Theory

U.S. Monetary Policy: A View from Macro Theory

We use a dynamic stochastic general equilibrium model to address two questions about U.S. monetary policy: 1) Can monetary policy elevate output when it is below potential? and 2) Is the zero lower bound a trap? The model’s answer to the first question is yes it can, but the effect is only temporary and probably not welfare enhancing. The answer to the second question is more complicated becaus...

Optimal Macro-Prudential and Monetary Policy∗

This paper addresses two main questions. First, it examines the implications of financial frictions, embedded in a New Keynesian DSGE model with a banking sector, for the conduct of welfare-optimal monetary policy. Assuming only one monetary instrument, we analyse how financial frictions affect the gains from commitment and how different are the optimized simple rules with and without financial...

Optimal Monetary Policy: a New Keynesian View

As Paul Samuelson once put it: Adam Smith is dead and Keynes is dead; well— and Mises is dead, too. But Keynesianism is alive and well and back with a vengeance. Built on solid neoclassical foundations, this “new” Keynesianism, which features the effects of nominal rigidities in the presence of economic shocks and the existence of involuntary unemployment, represents the theoretical core of mod...

ECON 5010 Class Notes Monetary Policy Rules and Macro Stability

1 Introduction From the late 1960s through the early 1980s, the macroeconomy experienced high in‡ation and several recessions. Many attribute this to oil price shocks. Others argue that the persistent high in‡ation may have been due to poorly managed monetary policy. CGG set out to add rigor to this latter argument. CGG estimate a forward-looking interest rate rule before Paul Volker (pre-1979)...

Monetary Policy: Some Theory and Evidence