Monetary Policy Rules

George McCandless ()
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George McCandless: Central Bank of Argentina

No 202192, BCRA Working Paper Series from Central Bank of Argentina, Economic Research Department

Abstract: The object of this paper is to consider the effects on an economy of two alternative channels of monetary policy using a cash in advance model. One of the channels is simply giving money to less well of households (unskilled). The second channel is similar to central bank monetary policy, each period lump sum monetary transfers are given to or extracted from financial intermediaries by skilled and unskilled workers. Having a model with two channels of monetary policy that operate in fundamentally different ways allows one to think carefully about the effects of a monetary policy of sterilization of inflation through contraction of money on the financial side. In addition, having two groups of households, one unskilled, with lower wages and reduced opportunities for saving, and another skilled with higher wages and the ability to own and rent out capital in addition to holding bank deposits, permits a more careful consideration of the welfare effects of this type of policy. In addition, this kind of analysis helps explain why different countries, those with more or fewer unskilled workers, will choose to follow different policies with respect to a politically optimal inflation rate.

Keywords: cash in advance models; monetary policy rules; monetary policy transmission channels; optimal inflation rate (search for similar items in EconPapers)
JEL-codes: E17 E52 E58 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2021-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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