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Multiple objectives and central bank tradeoffs under flexible inflation targeting
In: CESifo working paper series 5097
In: Monetary policy and international finance
Day Two Keynote Address: Goals and Rules in Central Bank Design
Beginning with the Reserve Bank of New Zealand Act of 1989, central banking reforms have focused on assigning clear goals for which monetary policy authorities can be held accountable. Inflation-targeting regimes provide examples of such goal-based policy frameworks. An alternative approach relies on a rule-based framework in which the policy authorities are judged on whether they set their instrument in a manner consistent with a legislated rule. I consider the performance of goal-based and rule-based frameworks. I first show analytically that both goal-based and rule-based systems balance a trade-off between reducing sources of policy distortions and preserving policy flexibility. Then, using an estimated DSGE model, I find the optimal weights to place on goal-based and rule-based performance measures. When the rule is similar to that proposed recently in U.S. H.R. 5108, I find that the optimal weight to assign to the rule-based performance measure is zero. However, when the rule is based on the output efficiency gap, it is generally optimal to make deviations from the rule a part of the central bank's performance measure.
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Goals and Rules in Central Bank Design
In: CESifo Working Paper Series No. 5293
SSRN
Multiple Objectives and Central Bank Tradeoffs Under Flexible Inflation Targeting
In: CESifo Working Paper Series No. 5097
SSRN
Working paper
Implementing Monetary Policy
In: Seoul Journal of Economics, Band 24, Heft 4, S. 427-470
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Implementing monetary policy
During the past three years, central banks have faced challenges that few foresaw during the period known as the Great Moderation. During the crisis, central banks have responded with traditional interest rate tools, been forced to deal with the zero lower bound on nominal interest rates, and expanded the scope of their lender of last resort function. In addition, quantitative easing and credit easing policies have entered the toolkit of central banks. After briefly discussing the instruments of monetary policy and reviewing the performance of inflation targeting, I consider three suggested modifications to this policy framework. These are raising the average target for inflation, incorporating additional objectives, and switching to price level targeting.
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The future of inflation targeting
By the end of the Great Moderation, over two dozen central banks were formal inflation targeters, and others, such as the Federal Reserve, the European Central Bank, and the Swiss National Bank behaved essentially as inflation targeters even though they were resistant to identifying themselves as such. However, the past three years have seen central banks faced with new challenges, and these have raised questions about the future of inflation targeting as a framework for the conduct of monetary policy. I consider three suggested modifications to this policy framework: incorporating additional goals among a central bank's objectives; raising the average target for inflation; and switching to price level targeting.
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Endogenous objectives and the evaluation of targeting rules for monetary policy
In: Journal of monetary economics, Band 52, Heft 5, S. 889-911
Parameter misspecification and robust monetary policy rules
In this paper, I evaluate the performance deterioration that occurs when the central bank employs an optimal targeting rule that is based on incorrect parameter values. I focus on two parameters — the degree of inflation inertia and the degree of price stickiness. I explicitly account for the effects of the structural parameters on the objective function used to evaluate outcomes, as well as on the model's behavioral equations. The costs of using simple rules relative to the costs of parameter misspecification are also assessed.
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[Monetary Policy under Uncertainty in Micro-Founded Macroeconometric Models]: Comment
In: NBER macroeconomics annual, Band 20, S. 297-308
ISSN: 1537-2642
Comment on: The zero-interest-rate bound and the role of the exchange rate for monetary policy in Japan
In: Journal of Monetary Economics, Band 50, Heft 5, S. 1103-1108
Speed Limit Policies: The Output Gap and Optimal Monetary Policy
In: American economic review, Band 93, Heft 1, S. 265-278
ISSN: 1944-7981
Comment
In: NBER macroeconomics annual, Band 15, Heft 1, S. 124-135
ISSN: 1537-2642
[The Political Business Cycle after 25 Years]: Comment
In: NBER macroeconomics annual, Band 15, S. 124-135
ISSN: 1537-2642