Monetary policy objectives and Money’s role in U.S. business cycles

Eurilton Araújo

Journal of Macroeconomics, 2015, vol. 45, issue C, 85-107

Abstract: In a sticky-price model in which money can potentially play a key role in business cycles, I estimate monetary policy preference parameters under commitment in a timeless perspective. Empirical findings suggest that inflation stabilization and interest rate smoothing are the main objectives of monetary policy, with a very small role for output gap stabilization. Though the money growth rate is irrelevant as an argument in the Fed’s objective function, its presence in structural equations improves model fit. Moreover, marginal likelihood comparisons show that the data favor Taylor rules over optimal policies. Finally, the way of describing monetary policy matters for macroeconomic dynamics.

Keywords: Bayesian estimation; Central bank preferences; Optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Working Paper: Monetary Policy Objectives and Money's Role in U.S. Business Cycles (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:45:y:2015:i:c:p:85-107

DOI: 10.1016/j.jmacro.2015.03.007

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