Estimates of the Effectiveness of Monetary Policy
29 Pages Posted: 20 Jun 2001
Date Written: June 2003
This paper examines various interest rate rules, as well as policies derived by solving optimal control problems, for their ability to dampen economic fluctuations caused by random shocks. A tax rate rule is also considered. A multicountry econometric model is used for the experiments. The results differ sharply from those obtained using recent models in which the coefficient on inflation in the nominal interest rate rule must be greater than one in order for the economy to be stable.
Keywords: Monetary Policy, Interest Rate Rules
JEL Classification: E52
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