Incorporating Labour Market Frictions into an Optimising-Based Monetary Policy Model

ABSTRACT The purpose of this contribution is to develop a Post Keynesian monetary policy model, presenting its goals, tools, and channels. The original contribution this paper develops, following (Keynes’s 1936, 1945) proposals, is the use of debt management as an instrument of monetary policy, along with the interest rate and regulation. Moreover, this paper draws its monetary policy model by broadly and strongly relying on Keynes’s original writings. A monetary policy model erected upon this basis relates itself directly to the Post Keynesian efforts to offer a monetary policy framework substantially different from the Inflation Targeting Regime of the New Macroeconomic Consensus.

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Monetary Policy, Model Uncertainty and Exchange Rate Volatility

SSRN Electronic Journal ◽

10.2139/ssrn.1555593 ◽

2010 ◽

Author(s):

Agnieszka Markiewicz

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Model Uncertainty ◽

Exchange Rate Volatility ◽

Policy Model

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Habit Formation in Consumption and Its Implications for Monetary-Policy Models

The American Economic Review ◽

10.1257/aer.90.3.367 ◽

2000 ◽

Vol 90 (3) ◽

pp. 367-390 ◽

Cited By ~ 547

Author(s):

Jeffrey C Fuhrer

Keyword(s):

Monetary Policy ◽

Habit Formation ◽

Formation Model ◽

Policy Model ◽

Current Consumption ◽

Policy Models ◽

Empirical Tests

This paper explores a monetary-policy model with habit formation for consumers, in which consumers' utility depends in part on current consumption relative to past consumption. The empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous confidence, largely because the habit-formation model captures the gradual hump-shaped response of real spending to various shocks. The paper then embeds the habit-consumption specification in a monetary-policy model and finds that the responses of both spending and inflation to monetary-policy actions are significantly improved by this modification. (JEL D12, E52, E43)

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