Optimal Monetary Stabilization Policy

Michael Woodford

Chapter 14 in Handbook of Monetary Economics, 2010, vol. 3, pp 723-828 from Elsevier

Abstract: This chapter reviews the theory of optimal monetary stabilization policy in New Keynesian models, with particular emphasis on developments since the treatment of this topic in Woodford (2003). The primary emphasis of the chapter is on methods of analysis that are useful in this area, rather than on final conclusions about the ideal conduct of policy (that are obviously model-dependent, and hence dependent on the stand that one might take on many issues that remain controversial), and on general themes that have been found to be important under a range of possible model specifications.1 With regard to methodology, some of the central themes of this review will be the application of the method of Ramsey policy analysis to the problem of the optimal conduct of monetary policy, and the connection that can be established between utility maximization and linear-quadratic policy problems of the sort often considered in the central banking literature. With regard to the structure of a desirable decision framework for monetary policy deliberations, some of the central themes will be the importance of commitment for a superior stabilization outcome, and more generally, the importance of advance signals about the future conduct of policy, the advantages of history-dependent policies over purely forward-looking approaches, and the usefulness of a target criterion as a way of characterizing a central bank's policy commitment.

Keywords: Ramsey Policy; Timeless Perspective; Commitment; Discretion; Loss Function; Linear-Quadratic Approximation; Forecast Targeting; Target Criterion; Inflation Target; Price-Level Target; Zero Lower Bound (search for similar items in EconPapers)
JEL-codes: E0 (search for similar items in EconPapers)
Date: 2010
ISBN: 978-0-444-53470-5
References: Add references at CitEc
Citations: View citations in EconPapers (79)

Downloads: (external link)
http://www.sciencedirect.com/science/article/B7P60 ... b3300478410daa58538c
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Optimal Monetary Stabilization Policy (2010)
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:monchp:3-14

Access Statistics for this chapter

More chapters in Handbook of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().