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Optimal monetary policy rules in a rational expectations model of the Phillips curve

Clark, Peter B., Goodhart, Charles A. E. and Huang, Haizhou (1999) Optimal monetary policy rules in a rational expectations model of the Phillips curve. Journal of Monetary Economics, 43 (2). 497 - 520. ISSN 0304-3932

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Identification Number: 10.1016/S0304-3932(98)00055-5

Abstract

Using a rational expectations model based on a Phillips curve with persistence in inflation, we derive optimal monetary policy rules under both commitment and discretion. We assume that the central bank targets the natural rate of output, so there is no incentive generating an average inflation bias. With commitment, inflation has less persistence but more conditional variability, whereas output has more persistence and less conditional variability than with discretion. As the commitment strategy stabilizes the systematic component of inflation, it is less responsive to random shocks to inflation.

Item Type: Article
Official URL: http://www.sciencedirect.com/science/journal/03043...
Additional Information: © 1999 Elsevier Science B.V.
Divisions: Financial Markets Group
Subjects: H Social Sciences > HG Finance
JEL classification: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects)
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Date Deposited: 19 Feb 2010 11:50
Last Modified: 03 Jan 2024 04:48
URI: http://eprints.lse.ac.uk/id/eprint/7138

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