The Role of Output Stabilization in the Conduct of Monetary Policy

25 Pages Posted: 19 Oct 2002

See all articles by Frederic S. Mishkin

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: October 2002

Abstract

This paper examines the role of output stabilization in the conduct of monetary policy. It argues that activist monetary policy in which the monetary authorities focus on output fluctuations in the setting of their policy instrument and in policy statements is likely to produce worse outcomes for output and inflation fluctuations, both because it will lead to suboptimal monetary policy, but also because it complicates monetary authorities' communication strategy and can weaken the credibility of the central bank. In contrast, conducting monetary policy with a flexible inflation target rule is likely to produce better outcomes. A flexible inflation target rule also allows the monetary authorities to effectively communicate to the public that they do care about output fluctuations, but makes it less likely that they will be encouraged to try to exploit the short-run tradeoff between output and inflation.

Suggested Citation

Mishkin, Frederic S., The Role of Output Stabilization in the Conduct of Monetary Policy (October 2002). NBER Working Paper No. w9291, Available at SSRN: https://ssrn.com/abstract=341859

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
28
Abstract Views
822
PlumX Metrics