scholarly journals Optimal Interest-Rate Rules in a Forward-Looking Model, and Inflation Stabilization versus Price-Level Stabilization

2010 ◽  
Author(s):  
Marc Giannoni
Keyword(s):  
Interest Rate ◽  
Price Level ◽  
Interest Rate Rules ◽  
Inflation Stabilization ◽  
Forward Looking

MACROECONOMIC (IN)STABILITY OF INTEREST RATE RULES IN A MODEL WITH BANKING SYSTEM AND RESERVE MARKETS

2014 ◽  
Vol 19 (7) ◽  
pp. 1476-1508 ◽  
Author(s):  
Shu-Hua Chen
Keyword(s):  
Interest Rate ◽  
Discrete Time ◽  
Equilibrium Model ◽  
Banking System ◽  
Interest Rate Rules ◽  
Active Rules ◽  
Monetary Policies ◽  
Physical Investment ◽  
Monetary Rules ◽  
Forward Looking

This paper develops a general equilibrium model with a banking system and a reserves market and shows that (i) the macroeconomic stabilizing properties of the nominal interest rate rules change quite substantially when we move from a model without a banking system to one with a banking system and a reserves market; (ii) the interplay between fiscal and monetary policies, in particular inflation-indexed versus non-indexed bonds, is crucial in determining the macroeconomic stabilizing properties of monetary rules; (iii) active rules and passive rules perform equally in regard to their macroeconomic stabilizing properties; (iv) continuous- and discrete-time specifications deliver the same/different (in)determinacy results for both the labor-only model and the endogenous-capital model under forward-looking/current-looking rules; (v) the inclusion of physical investment narrows the indeterminacy region under forward-looking rules; and (vi) current-looking rules make equilibrium determinacy impossible for both the labor-only economy and the endogenous-capital economy. Economic intuitions are provided.

scholarly journals News Shocks and Optimal Simple Rules

2011 ◽  
Vol 62 (1) ◽  
pp. 1-11 ◽  
Author(s):  
Roland C. Winkler ◽  
Hans-Werner Wohltmann
Keyword(s):  
Interest Rate ◽  
Basic Principle ◽  
News Shocks ◽  
Interest Rate Rules ◽  
Policy Rules ◽  
Control Rule ◽  
Simple Rules ◽  
Forward Looking

SummaryThis paper evaluates the performance of optimal simple policy rules in the presence of news shocks. It is shown that the inclusion of forward-looking elements enhances the performance of simple optimized interest rate rules when agents learn about future disturbances in advance. We provide a rationale for this result by demonstrating that, if shocks are news shocks, the optimal unrestricted control rule under commitment contains as a basic principle a forward-looking element.

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