Targeting versus instrument rules for monetary policy
Bennett McCallum and
Edward Nelson
Review, 2005, vol. 87, issue Sep, 597-612
Abstract:
Svensson (2003) argues strongly that specific targeting rules-first-order optimality conditions for a specific objective function and model-are normatively superior to instrument rules for the conduct of monetary policy. That argument is based largely on four main objections to the latter, plus a claim concerning the relative interest-instrument variability entailed by the two approaches. The present paper considers the four objections in turn and advances arguments that contradict all of them. Then, in the paper's analytical sections, it is demonstrated that the variability claim is incorrect, for a neo-canonical model and also for a variant with one-period-ahead plans used by Svensson, providing that the same decisionmaking errors are relevant under the two alternative approaches. Arguments relating to general targeting rules and actual central bank practice are also included.
Keywords: Banks and banking, Central; Monetary policy (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (53)
Downloads: (external link)
https://files.stlouisfed.org/files/htdocs/publications/review/05/09/McCallum.pdf (application/pdf)
Related works:
Journal Article: Targeting versus instrument rules for monetary policy (2005) 
Working Paper: Targeting vs. instrument rules for monetary policy (2004) 
Working Paper: Targeting vs. Instrument Rules for Monetary Policy (2004) 
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:fip:fedlrv:y:2005:i:sep:p:597-612:n:v.87no.5
Access Statistics for this article
Review is currently edited by Juan M. Sanchez
More articles in Review from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().