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>

PARAMETER UNCERTAINTY AND NONLINEAR MONETARY POLICY RULES

2010 ◽  
Vol 15 (2) ◽  
pp. 184-200 ◽  
Author(s):  
Peter Tillmann
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Empirical Evidence ◽  
Parameter Uncertainty ◽  
Phillips Curve ◽  
Optimal Monetary Policy ◽  
Worst Case ◽  
Rate Adjustment ◽  
The Interest Rate

Empirical evidence suggests that the instrument rule describing the interest rate–setting behavior of the Federal Reserve is nonlinear. This paper shows that optimal monetary policy under parameter uncertainty can motivate this pattern. If the central bank is uncertain about the slope of the Phillips curve and follows a min–max strategy to formulate policy, the interest rate reacts more strongly to inflation when inflation is further away from target. The reason is that the worst case the central bank takes into account is endogenous and depends on the inflation rate and the output gap. As inflation increases, the worst-case perception of the Phillips curve slope becomes larger, thus requiring a stronger interest rate adjustment. Empirical evidence supports this form of nonlinearity for post-1982 U.S. data.

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.

scholarly journals Optimal Rules bagi Instrumen Kebijakan Moneter di Indonesia: Pengujian Empiris Model Guender

2008 ◽  
Vol 9 (1) ◽  
pp. 93-115
Author(s):  
Zenathan Adnin ◽  
Eugenia Mardanugraha
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Inflation Targeting ◽  
Phillips Curve ◽  
Policy Instrument ◽  
Test Model ◽  
Output Stability ◽  
The Interest Rate ◽  
Forward Looking

This study aims to test model developed by Guender (2002) in determining optimal rules for monetary policy instrument in Indonesia. The test is conducted by estimating parameters of IS equation and Forward Looking Phillips Curve. The result expected is rules for determining the optimal interest rate which is influenced by the gap between actual and targeted inflation. The result shows that in the era of inflation targeting the interest rate setting policy as monetary policy instrument has focus on output stability rather than inflation stability. Finally, the study concludes that the interest rate targeting as BI rate has not being optimal.

scholarly journals The Information Content of the Interest Rate and Optimal Monetary Policy

1981 ◽  
Vol 1981 (192) ◽  
pp. 1-35 ◽  
Author(s):  
Matthew B. Canzoneri ◽  
◽  
Dale W. Henderson ◽  
Kenneth S. Rogoff
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Information Content ◽  
Optimal Monetary Policy ◽  
The Interest Rate

scholarly journals DAMPAK KEBIJAKAN INFLATION TARGETING TERHADAP BEBERAPA VARIABEL MAKROEKONOMI DI INDONESIA

2007 ◽  
Vol 9 (1) ◽  
Author(s):  
Yati Nuryati ◽  
Hermanto Siregar ◽  
Anny Ratnawati
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Inflation Targeting ◽  
Time Series Data ◽  
Policy Instrument ◽  
Series Data ◽  
Long Run ◽  
The Exchange Rate ◽  
The Interest Rate

This paper discusses the effects of the inflation targeting framework on a number of macroeconomic variabels in Indonesia, especially after the enactment of Law No. 23/1999. The objectives of the paper are: (1) to describe the independence aspect of the inflation targeting policy; and (2) to highlight the effects of the inflation targeting on a set of main macroeconomic variables.The anaysis uses the Vector Autoregression (VAR) approach, emploting the time series data during the periode of 1998:1 to 2003:6. The main results of this research are: (1) The Central Bank (BI) independence is not yet effective in the implementation of the inflation targeting; (2) the shock on the interest rate affects price level and the exchange rate trivially; and (2) the factors that influence price’s variability are the base money, the interest rate, and the exchange rate. In the long run, a shock to the base money is more important than to the interest rate and to the exchange rate. The study suggests to use base money as the policy instrument of the monetary policy, instead of the short term interest.Keywords: monetary policy, independence, inflation targeting, VARJEL Classification: C32, E31, E52

scholarly journals The Information Content of the Interest Rate and Optimal Monetary Policy

1983 ◽  
Vol 98 (4) ◽  
pp. 545 ◽  
Author(s):  
Matthew B. Canzoneri ◽  
Dale W. Henderson ◽  
Kenneth S. Rogoff
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Information Content ◽  
Optimal Monetary Policy ◽  
The Interest Rate

scholarly journals Credibility of the Philippine Central Bank: Evidenced by the Interest Rate Pass-Through

2017 ◽  
Vol 3 (1) ◽  
pp. 47-56
Author(s):  
Chu V. Nguyen
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Empirical Finding ◽  
Policy Makers ◽  
Long Run ◽  
Short Run ◽  
Pass Through ◽  
The Interest Rate

This study investigates the Philippine interest rate pass-through over the December 2001 through January 2016 period. The empirical findings suggest that the Philippine Central Bank has not been very effective in formulating and implementing its countercyclical monetary policy. Specifically, the empirical results reveal very low short-run and long- run interest rate pass-through. The Bounds test results indicate no long-term relationship between countercyclical monetary policy and market rates. Notwithstanding the banking system's remarkable performance in the recent years, amid lingering uncertainties in global financial markets, the Philippine Central Bank lacked the credibility in conducting its countercyclical monetary policy. This empirical finding may not be desirable but it forewarns the monetary policy makers of challenges in formulating and implementing their monetary policy.

scholarly journals Labor Productivity and Phillips Curve in China: Contemporary Investigation

2019 ◽  
Vol 15 (1) ◽  
pp. 37-48
Author(s):  
Nahid Kalbasi Anaraki
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Phillips Curve ◽  
Short Term ◽  
Trade Off ◽  
The United Kingdom ◽  
Long Run ◽  
Advanced Economies ◽  
Using Data ◽  
The Relationship

The Phillips curve on the trade-off between inflation and unemployment has been debated among economists for more than decades. Several studies have found that Phillips curve is dead in advanced economies and does not exist. Among others, Friedman (1968) stated that Phillips curve does not exist in the long-run because the relationship between inflation and unemployment is a temporary and short-term. On the contrary, Fuhrer (1995) found that Phillips curve is still alive in the United Kingdom; and Malinov and Sommers (1997) found that Phillips curve is still alive and stable in several OECD countries. This paper attempts to investigate whether a long-run Philips Curve exists in China. Using data for the period of 1987-2016 the estimated results of this study indicate that the Phillips curve, which existed during the late 1980s through 2000 in China has been gradually transformed to an almost vertical curve since 2000s, with a correlation of 0.8, indicating the importance of other policy variables including monetary policy and exchange rate regimes.

scholarly journals Monetary determinants of deposit euroization in European post-transition countries

2013 ◽  
Vol 60 (1) ◽  
pp. 89-101
Author(s):  
Marina Tkalec
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rates ◽  
Transition Economies ◽  
Long Run ◽  
Johansen Cointegration ◽  
Short Run ◽  
The Interest Rate ◽  
Interest Rate Differentials

This paper investigates the long-run and short-run relationship between deposit euroization in twelve European post-transition economies and two determinants of deposit euroization that are under the influence of monetary policy: the exchange rate and the interest rate differential. The link between deposit euroization, exchange rates and interest rate differentials is investigated using Johansen cointegration and error correction models for each country separately. The results suggest that changes in both monetary drivers have significant effects on deposit euroization and are therefore important for explaining and fighting deposit euroization. Differences between exchange rate regimes, fixed and managed vs. floating, seem to matter for deposit euroization.

Are Structural VARs with Long-Run Restrictions Useful for Developing Monetary Policy Strategy in Egypt?

2009 ◽  
Vol 12 (03) ◽  
pp. 509-527 ◽  
Author(s):  
Ahmed Hachicha ◽  
Cheng-Few Lee
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Bank Lending ◽  
Long Run ◽  
Short Run ◽  
Global Liquidity ◽  
Transitory Effect ◽  
Structural Vars ◽  
The Interest Rate ◽  
Interest Rate Channel

On the basis of SVAR models of monetary policy in Egypt for the period December 1976–May 2006, our paper explores a new empirical assessment for the interest rate channel in correcting trouble in the Egyptian economy by imposing contemporaneous and long run restrictions. It appears that after a monetary policy expansion, output is stable in the first period, rises temporarily reaching the baseline at t = 40, and the global monetary aggregate rises but not significantly. In addition, the price level rises with great difficulties in response to a negative interest rate shock to the global liquidity aggregate. The excess of money supply has a transitory effect on the Egyptian output but it causes inflation pressures. SVAR Blanchard and Quah (1989) estimation reveals contradictory results to the previous findings. Last but certainly not least, this means that the effect of bank lending and the interest rate channels on the economy are limited in time. The paper shows that the transmission of monetary policy through the interest rate channel has become weak in the short run but more important in the long run. Nonetheless, the bank lending channel through the commercial bank lending is not a potent monetary transmission mechanism.

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