Employment targeting

Jean-Pascal Benassy ()

PSE Working Papers from PSE (Ecole normale supérieure)

Abstract: Many recent discussions on the conduct of monetary policy through interest rate rules have given a very central role to inflation, both as an objective and as an intermediate instrument. We want to show that other variables like employment can be as important or even more. For that we construct a dynamic stochastic general equilibrium (DSGE) model where the economy is subject to demand and supply shocks. We compute closed form solutions for the optimal interest rate rules and find that they can be function of employment only, which then dominates inflation for use in the policy rule.

New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2006
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Persistent link: http://EconPapers.repec.org/RePEc:pse:psecon:2006-20

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