Author: Bennett T. McCallum Publisher: ISBN: Category : Languages : en Pages :
Book Description
This paper reconsiders a result obtained by Sargent and Wallace, namely, that price level indeterminacy obtains in their well-known model if the monetary authorities adopt a policy feedback rule for the interest rate rather than the money stock. Since the Federal Reserve seems often to have used the federal funds rate as its operating instrument, with the money stack determined by the quantity demanded, this result suggests that the Sargent-Wallace model -- as well as others incorporating rational expectations -- is inconsistent with U.S. experience. It is here shown, however, that the indeterminacy result vanishes if the interest rate rule is chosen so as to have some desired effect on the expected quantity of money demanded. This revised conclusion holds even if considerable weight is given, in the choice of a rule, to the aim of smoothing interest rate fluctuations
Author: Stephanie Schmitt-Grohé Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
This paper analyzes the implications of a balanced budget fiscal policy rule for the determinacy of the price level in a cash-in-advance economy under three alternative monetary policy regimes. It shows that in such stylized models with flexible prices and a period-by-period balanced budget requirement the price level is determinate under a money growth rate peg and is indeterminate under a pure nominal interest rate peg. Under a feedback rule whereby the nominal interest rate is set as an increasing function of the inflation rate, the price level is determinate for intermediate values of the inflation elasticity of the feedback rule and is indeterminate for both very low and very high values of the inflation elasticity. Finally, regardless of the particular monetary policy specification, a rational expectations equilibrium consistent with the optimal quantity of money may not exist.
Author: Bennett T. McCallum Publisher: ISBN: Category : Interest Languages : en Pages : 32
Book Description
This paper reconsiders a result obtained by Sargent and Wallace, namely, that price level indeterminacy obtains in their well-known model if the monetary authorities adopt a policy feedback rule for the interest rate rather than the money stock. Since the Federal Reserve seems often to have used the federal funds rate as its operating instrument, with the money stack determined by the quantity demanded, this result suggests that the Sargent-Wallace model -- as well as others incorporating rational expectations -- is inconsistent with U.S. experience. It is here shown, however, that the indeterminacy result vanishes if the interest rate rule is chosen so as to have some desired effect on the expected quantity of money demanded. This revised conclusion holds even if considerable weight is given, in the choice of a rule, to the aim of smoothing interest rate fluctuations.
Author: Mr.Eric V. Clifton Publisher: International Monetary Fund ISBN: Category : Business & Economics Languages : en Pages : 34
Book Description
This paper examines a real interest rate targeting procedure based on lagged inflation similar to the policy followed by the Brazilian monetary authorities during the period November 1986 to December 1988, focusing on the issue of the determinacy of the price level. For the specific model examined, the analysis suggests that such a targeting procedure would not suffer from the frequently noted defect of nominal interest rate targeting rules of leaving the conditional expectation of the next period price level undetermined.
Author: Michael Woodford Publisher: Princeton University Press ISBN: 1400830168 Category : Business & Economics Languages : en Pages : 805
Book Description
With the collapse of the Bretton Woods system, any pretense of a connection of the world's currencies to any real commodity has been abandoned. Yet since the 1980s, most central banks have abandoned money-growth targets as practical guidelines for monetary policy as well. How then can pure "fiat" currencies be managed so as to create confidence in the stability of national units of account? Interest and Prices seeks to provide theoretical foundations for a rule-based approach to monetary policy suitable for a world of instant communications and ever more efficient financial markets. In such a world, effective monetary policy requires that central banks construct a conscious and articulate account of what they are doing. Michael Woodford reexamines the foundations of monetary economics, and shows how interest-rate policy can be used to achieve an inflation target in the absence of either commodity backing or control of a monetary aggregate. The book further shows how the tools of modern macroeconomic theory can be used to design an optimal inflation-targeting regime--one that balances stabilization goals with the pursuit of price stability in a way that is grounded in an explicit welfare analysis, and that takes account of the "New Classical" critique of traditional policy evaluation exercises. It thus argues that rule-based policymaking need not mean adherence to a rigid framework unrelated to stabilization objectives for the sake of credibility, while at the same time showing the advantages of rule-based over purely discretionary policymaking.
Author: Ben S. Bernanke Publisher: University of Chicago Press ISBN: 0226044734 Category : Business & Economics Languages : en Pages : 469
Book Description
Over the past fifteen years, a significant number of industrialized and middle-income countries have adopted inflation targeting as a framework for monetary policymaking. As the name suggests, in such inflation-targeting regimes, the central bank is responsible for achieving a publicly announced target for the inflation rate. While the objective of controlling inflation enjoys wide support among both academic experts and policymakers, and while the countries that have followed this model have generally experienced good macroeconomic outcomes, many important questions about inflation targeting remain. In Inflation Targeting, a distinguished group of contributors explores the many underexamined dimensions of inflation targeting—its potential, its successes, and its limitations—from both a theoretical and an empirical standpoint, and for both developed and emerging economies. The volume opens with a discussion of the optimal formulation of inflation-targeting policy and continues with a debate about the desirability of such a model for the United States. The concluding chapters discuss the special problems of inflation targeting in emerging markets, including the Czech Republic, Poland, and Hungary.
Author: John H. Cochrane Publisher: Princeton University Press ISBN: 0691242240 Category : Business & Economics Languages : en Pages : 584
Book Description
"Inflation, in which all prices and wages in an economy rise, is mysterious. If a war breaks out in the Middle East, and the price of oil goes up, the mechanism is no great mystery-supply and demand often work pretty visibly. But if you ask the grocer why the price of bread is higher, he or she will blame the wholesaler, who will blame the baker, who will blame the wheat supplier, and so on. Perhaps the ultimate cause is a government printing more money, but there is really no way to know this for certain but to sit down in an office with statistics, armed with some decent economic theory. But current economic theory doesn't really explain why we haven't seen inflation for so long, and more and more economists think that current theory doesn't hold together, or provide much guidance for how central banks should behave if inflation does break out. Many also worry that central banks have much less power over the economy than they think they do, and much less understanding of the mechanism behind what power they do have. The Fiscal Theory of the Price Level is a comprehensive new approach to monetary policy. Economist John Cochrane argues that money has value because the government accepts it for tax payments. This insight, he argues, leads to a deep re-reading of monetary policy and institutions. Inflation comes when a government is unable to repay its debts, rather than from mismanagement of the split of debt between money and bonds. In the book, he will analyze institutional design, historical episodes, and compare fiscal theory to the Keynesian and new-Keynesian theory based on interest rate targets, and to monetarism. The book offers an overview and introduction to the range of contemporary monetary economics and history of thought as well as the fiscal theory"--
Author: Federal Reserve Bank of Minneapolis Publisher: The Minerva Group, Inc. ISBN: 0894990683 Category : Business & Economics Languages : en Pages : 113
Book Description
"A Prescription for Monetary Policy," originally published in 1976, contains the proceedings from a series of seminars. The seminars addressed the question, "How should the Federal Open Market Committee (FOMC) make monetary policy?" The need to carefully reexamine this question gained in urgency as the economic distress story of the mid-1970s unfolded. In recognition of the unsatisfactory state of the economy, a major Federal Reserve System research program was launched under the auspices of the FOMC?s Committee on the Directive. The study?s objective was to produce for the FOMC?s consideration a set of recommendations on how to improve the execution of monetary stabilization policy.
Author: Michael Woodford Publisher: ISBN: Category : Interest rates Languages : en Pages : 56
Book Description
It is shown that the price level remains determinate even in the case of two kinds of radical money supply endogeneity -- an interest rate peg by the central bank, and a 'free banking' regime -- that are commonly supposed to imply loss of control of the price level. Price level determination under such regimes can be understood in terms of a 'fiscal theory of the price level, ' according to which the equilibrium price level is that level that makes the real value of nominally denominated government liabilities equal to the present value of expected future government budget surpluses. The application of the fiscal theory of the price level to exogenous-money regimes is sketched as well.
Author: Bennett T. McCallum
Author: Stephanie Schmitt-Grohé
Author: Bennett T. McCallum
Author: Mr.Eric V. Clifton
Author: Michael Woodford
Author: Ragna Alstadheim
Author: Ben S. Bernanke
Author: John H. Cochrane
Author: Federal Reserve Bank of Minneapolis
Author: Michael Woodford