On the observational (non)equivalence of money growth and interest rate rules

Stéphane Auray and Patrick Fève

Journal of Macroeconomics, 2008, vol. 30, issue 3, 801-816

Abstract: In this paper, we discuss the observational equivalence between two monetary policy rules: a constant money growth rule and an interest rate rule. From the equilibrium conditions of a sticky prices model, we consider: (i) the Taylor rule parameter implied by the model with exogenous money supply; and (ii) the parameter of the money growth process implied by the model with an interest rate rule. We then compare the parameters of the two monetary rules in each case to evaluate the equivalence property. We show that the two monetary policy rules are not observationally equivalent (except in a very implausible empirical case) and therefore that the way of modeling monetary policy is of importance.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164-0704(07)00089-4
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:30:y:2008:i:3:p:801-816

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().