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http://ssrn.com/abstract=155555
 
 

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Taylor Rules in a Limited Participation Model


Lawrence J. Christiano


Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Christopher J. Gust


Federal Reserve Board - Trade and Financial Studies

March 1999

NBER Working Paper No. w7017

Abstract:     
We use the limited participation model of money as a laboratory for studying the operating characteristics of Taylor rules for setting the rate of interest. Rules are evaluated according to their ability to protect the economy from bad outcomes such as the burst of inflation observed in the 1970s. Based on our analysis, we argue for a rule which: (i) raises the nominal interest rate more than one-for-one with a rise in inflation; and (ii) does not change the interest rate in response to a change in output relative to trend.

Number of Pages in PDF File: 28

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Date posted: June 8, 1999  

Suggested Citation

Christiano, Lawrence J. and Gust, Christopher J., Taylor Rules in a Limited Participation Model (March 1999). NBER Working Paper No. w7017. Available at SSRN: http://ssrn.com/abstract=155555

Contact Information

Lawrence J. Christiano (Contact Author)
Northwestern University ( email )
2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8231 (Phone)
847-491-7001 (Fax)
Federal Reserve Bank of Cleveland
East 6th & Superior
Cleveland, OH 44101-1387
United States
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL 60604
United States
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Christopher J. Gust
Federal Reserve Board - Trade and Financial Studies ( email )
20th St. and Constitution Ave.
Washington, DC 20551
United States
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