In many countries, the monetary policy instrument remains unchanged for a long period and shows infrequent responses to exogenous shocks. The purpose of this paper is to provide a new explanation on why the central bank’s policy instrument remains so unchanged. In the following analysis, we explore how Knightian uncertainty affects optimal monetary policy. We apply the Choquet expected decision...

We study optimal monetary policy in a NewMonetarist framework with banking, private liquidity, and credit frictions.We show that whenever part of the decentralized transactions are allowed to use deposit claims backed by interest-bearing assets, the optimal policy is a non-Friedman-rule liquidity trap. In contrast, the Friedman rule is optimal if there are no credit frictions, or if the economy...

A formula is derived that links the coefficients of the monetary policy rule for the shortterm interest rate to the coefficients of the implied affine equations for long-term interest rates. The formula predicts that an increase in the coefficients in the monetary policy rule will lead to an increase in the coefficients in the affine equations. Empirical evidence for such a prediction is provid...

Bu çalışmada kurala dayalı ve ihtiyari para politikası tartışmalarından hareketle 2006-2021 dönemi baz alınarak, Türkiye’de Taylor Kuralı dahilinde politikasının enflasyon açığı, üretim açığı kur değişkenleri ile ilişkisi belirlenmeye çalışılmıştır. Söz konusu değişkenlerden sapmalar yaşandığında kısa vadeli faiz oranlarının nasıl seyir izlediği ARDL Sınır testi modeli incelenmiştir. İki modele...

Fiscal rules specify quantitative targets for key budgetary aggregates. In this paper, we review the experience with such rules in Japan and in the EU. Comparing the performance of fiscal policy in the 1980s and 1990s until 2003, we find that the fiscal rule of the 1980s exerted some but not much disciplinary influence on Japanese fiscal policy. The fiscal rule of the Maastricht Treaty had a si...