Theoretical conditions under which monetary policies are effective and practical obstacles to their verification

P. Swamy and George Tavlas

Economic Theory, 2005, vol. 25, issue 4, 999-1005

Abstract: We derive (i) necessary and sufficient and (ii) sufficient conditions for monetary policies to conform to what the literature characterizes as good policies. We show that the biasing effects of omitted variables, measurement errors, and misspecifications of “true” functional forms on the coefficients of monetary-policy reaction functions present practical obstacles to verifying such conditions. Copyright Springer-Verlag Berlin/Heidelberg 2005

Keywords: Monetary-policy reaction functions; Monetary-policy rules; “True” functional forms; Omitted variables; Measurement errors. (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1007/s00199-004-0482-8

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