 A reconsideration of money growth rulesMichael Belongia and Peter Ireland Journal of Economic Dynamics and Control, 2022, vol. 135, issue C Abstract: A New Keynesian model, estimated using Bayesian methods over a sample period that includes the 2009-15 episode of zero nominal interest rates, illustrates the effects of replacing the Federal Reserve’s historical policy of interest rate management with one targeting money growth instead. Counterfactual simulations show that a rule for adjusting the money growth rate, modestly and gradually, in response to changes in the output gap delivers performance comparable to the estimated interest rate rule in stabilizing output and inflation. The simulations also reveal that, under the same money growth rule, the US economy would have recovered more quickly from the 2007-9 recession, with a much shorter period of exceptionally low interest rates. These results suggest that money growth rules can serve as simple but useful guides for monetary policy and eliminate concerns about monetary policy effectiveness when the zero lower bound constraint is binding. Keywords: Divisia monetary aggregates; Monetary policy rules; New Keynesian models; Zero lower bound (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:135:y:2022:i:c:s0165188922000173 DOI: 10.1016/j.jedc.2022.104312 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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