Implementing optimal monetary policy: Objectives and rules

Huiping Yuan () and Stephen Miller

Economic Modelling, 2010, vol. 27, issue 3, 737-745

Abstract: The inconsistency of optimal policy comes from inconsistency between the social loss function and the economic structure. Accordingly, this paper designs a central bank loss function, which proves consistent with the economic structure. Under the designed central bank loss function discretionary policy proves optimal for social welfare. Optimal discretionary policy emerges because the implied behavioral equation is identical with that under commitment to the social loss function. Consequently, this paper also designs policy rules. To some extent, policy rules appear more basic, flexible, and operational than social and central bank loss functions, but the social loss function serves as an ultimate objective and the central bank loss function explicitly identifies the attainable targets and appropriate weight to achieve the social optimum.

Keywords: Optimal; policy; Central; bank; loss; functions; Policy; rules (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264-9993(10)00016-7
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Implementing Optimal Monetary Policy: Objectives and Rules (2009)
Working Paper: A General Schema for Optimal Monetary Policymaking: Objectives and Rules (2007)
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:ecmode:v:27:y:2010:i:3:p:737-745

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().