Monetary Policy Objectives and Money's Role in U.S. Business Cycles

Eurilton Araújo

No 403, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: In a sticky-price model in which money can potentially play a key role in business cycles, I estimate monetary policy preference parameters under commitment in a timeless perspective. Empirical findings suggest that inflation stabilization and interest rate smoothing are the main objectives of monetary policy, with a very small role for output gap stabilization. Though the money growth rate is irrelevant as an argument in the Fed's objective function, its presence in structural equations improves model fit. Moreover, marginal likelihood comparisons show that the data favor Taylor rules over optimal policies. Finally, the way of describing monetary policy matters for macroeconomic dynamics.

Date: 2015-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Journal Article: Monetary policy objectives and Money’s role in U.S. business cycles (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:403

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