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http://ssrn.com/abstract=226322
 
 

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Performance of Operational Policy Rules in an Estimated Semi-Classical Structural Model


Bennett T. McCallum


Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

Edward Nelson


Federal Reserve Bank of St. Louis - Research Division; Board of Governors of the Federal Reserve System (FRB)

June 1998

NBER Working Paper No. w6599

Abstract:     
This paper reports results of simulation exercises that explore several questions relating to the design of rules for monetary policy. Emphasis is given to issues raised by the concept of rule operationality, i.e., reliance on feasible instrument variables and information sets. Many of the results pertain to rules of the Taylor type -- i.e., with an interest rate instrument set in response to inflation and output-gap measures -- but some are reported for rules using a nominal income target and/or a monetary base instrument. The macroeconomic model utilized is small in scale but features a specification designed to represent rational dynamic optimizing choices by the economy's private agents. Saving and portfolio-balance behavior are expressed by optimizing versions of exceptional IS and LM functions, with gradual price adjustments specified differently in two variants of the model. One variant uses the well-known Calvo-Rotemberg price adjustment relation, whereas the second employs a newly-rationalized version of the Mussa-McCallum-Barro-Grossman P-bar model. Parameter values are estimated by instrumental variables on U.S. quarterly data for 1995-1996.

Number of Pages in PDF File: 56

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Date posted: July 19, 2000  

Suggested Citation

McCallum, Bennett T. and Nelson, Edward, Performance of Operational Policy Rules in an Estimated Semi-Classical Structural Model (June 1998). NBER Working Paper No. w6599. Available at SSRN: http://ssrn.com/abstract=226322

Contact Information

Bennett T. McCallum (Contact Author)
Carnegie Mellon University - David A. Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-2347 (Phone)
412-268-7357 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Edward Nelson
Federal Reserve Bank of St. Louis - Research Division ( email )
411 Locust St
Saint Louis, MO 63011
United States
314-444-8712 (Phone)
314-444-8731 (Fax)
Board of Governors of the Federal Reserve System (FRB) ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
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