scholarly journals The Equity Premium, Long-Run Risk, & Optimal Monetary Policy

2015 ◽  
Author(s):  
Anthony M. Diercks
Keyword(s):  
Monetary Policy ◽  
Equity Premium ◽  
Optimal Monetary Policy ◽  
Long Run ◽  
Long Run Risk

scholarly journals Robustly Optimal Monetary Policy with Near-Rational Expectations

2010 ◽  
Vol 100 (1) ◽  
pp. 274-303 ◽  
Author(s):  
Michael Woodford
Keyword(s):  
Monetary Policy ◽  
Private Sector ◽  
Central Bank ◽  
Optimal Policy ◽  
Rational Expectations ◽  
Stabilization Policy ◽  
Optimal Monetary Policy ◽  
Inflation Target ◽  
Model Consistency ◽  
Long Run

The paper considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model-consistency. It is found that commitment continues to be important for optimal policy, that the optimal long-run inflation target is unaffected by the degree of potential distortion of beliefs, and that optimal policy is even more history-dependent than if rational expectations are assumed. (JEL C62, D84, E13, E31, E32, E52)

scholarly journals RESPON KEBIJAKAN MONETER YANG OPTIMAL DI INDONESIA: The State-Contingent Rule?

2008 ◽  
Vol 10 (4) ◽  
Author(s):  
Solikin M. Juhro
Keyword(s):  
Monetary Policy ◽  
Structural Changes ◽  
Structural Model ◽  
Vector Autoregression ◽  
Policy Response ◽  
Optimal Monetary Policy ◽  
Cointegrating Vector ◽  
Long Run ◽  
Policy Variable ◽  
Short Run

By developing a long-run macro structural model, The Structural Cointegrating Vector Autoregression (VAR), the optimality principle of monetary policy response in Indonesia is formulated. It accommodates not only long-run policy response and short-run dynamic errorcorrection mechanism, but also specific shocks emerged due to structural changes in the economy. In that context, the generated policy response basically reflects the optimal response of a “state-contingent rule”, different from common simple policy rules, such as Taylor rule and McCallum rule. This study captures several important aspects related to the implementation of “state-contingent rule” as an optimal monetary policy in Indonesia, namely: (i) the superiority of interest rate as a policy variable, or an operational target, against monetary base, (ii) the identification of monetary policy lag which is estimated averagely one-and-a half year, and (iii) the sub optimality of central bank monetary policy response, attributed by an over tight or loose policy response.JEL Classification: C32, E52Keywords: Kebijakan Moneter di Indonesia, Respon Kebijakan Moneter, Structural Cointegration Vector Autoregression(VAR).

scholarly journals INFLATION RISK AND OPTIMAL MONETARY POLICY

2009 ◽  
Vol 13 (S1) ◽  
pp. 58-75 ◽  
Author(s):  
William T. Gavin ◽  
Benjamin D. Keen ◽  
Michael R. Pakko
Keyword(s):  
Monetary Policy ◽  
Term Structure ◽  
New Keynesian ◽  
Optimal Monetary Policy ◽  
Monetary Policies ◽  
Inflation Risk ◽  
Long Run ◽  
Order Of Magnitude ◽  
New Keynesian Models ◽  
Sticky Wages

This paper shows that the optimal monetary policies recommended by New Keynesian models still imply a large amount of inflation risk. We calculate the term structure of inflation uncertainty in New Keynesian models when the monetary authority adopts the optimal policy. When the monetary policy rules are modified to include some weight on a price path, the economy achieves equilibria with substantially lower long-run inflation risk. With either sticky prices or sticky wages, a price path target reduces the variance of inflation by an order of magnitude more than it increases the variability of the output gap.

scholarly journals An optimal control problem of monetary policy

2021 ◽  
Vol 26 (11) ◽  
pp. 5769
Author(s):  
Andrea Bacchiocchi ◽  
Germana Giombini
Keyword(s):  
Optimal Control ◽  
Monetary Policy ◽  
Interest Rate ◽  
Optimal Control Problem ◽  
Continuous Time ◽  
Phillips Curve ◽  
Optimal Monetary Policy ◽  
Trade Off ◽  
Long Run ◽  
The Interest Rate

<p style='text-indent:20px;'>This paper analyses an optimal monetary policy under a non-linear Phillips curve and linear GDP dynamics. A central bank controls the inflation and the GDP trends through the adjustment of the interest rate to prevent shocks and deviations from the long-run optimal targets. The optimal control path for the monetary instrument, the interest rate, is the result of a dynamic minimization problem in a continuous-time fashion. The model allows considering various economic dynamics ranging from hyperinflation to disinflation, sustained growth and recession. The outcomes provide useful monetary policy insights and reveal the dilemma between objectives faced by the monetary authority in trade-off scenarios.</p>

Optimal Monetary Policy

1998 ◽  
Vol 164 ◽  
pp. 100-109 ◽  
Author(s):  
Andrew P. Blake ◽  
Martin Weale ◽  
Garry Young
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Policy Design ◽  
Policy Framework ◽  
Optimal Monetary Policy ◽  
Long Run ◽  
Short Run ◽  
The Interest Rate ◽  
Feedback Rule ◽  
Simple Feedback

In this article we propose a policy framework for inflation targeting that contains elements of both optimal and simple rules. We use a simple feedback rule for the interest rate to look after monetary policy in the long run whilst using optimal control in the short run to determine appropriate responses to shocks. The composite policy is capable of substantial welfare improvements over using a simple rule alone whilst maintaining tractability. We see the use of such a framework together with a fully specified model as a feasible approach to practical policy design.

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