The Role of Central Bank Operating Procedures in an Economy with Productive Government Spending

Jordi Caballe () and Jana Hromcová

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: The choice of either the rate of monetary growth or the nominal interest rate as the instrument controlled by monetary authorities has both positive and normative implications for economic performance. We reexamine some of the issues related to the choice of the monetary policy instrument in a dynamic general equilibrium model exhibiting endogenous growth in which a fraction of productive government spending is financed by means of issuing currency. When we evaluate the performance of the two monetary instruments attending to the fluctuations of endogenous variables, we find that the inflation rate is less volatile under nominal interest rate targeting. Concerning the fluctuations of consumption and of the growth rate, both monetary policy instruments lead to statistically equivalent volatilities. Finally, we show that none of these two targeting procedures displays unambiguously higher welfare levels.

Keywords: monetary policy targets; productive government spending. (search for similar items in EconPapers)
JEL-codes: E52 E62 (search for similar items in EconPapers)
Pages: 29
Date: 2001-12-03
New Economics Papers: this item is included in nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Journal Article: The Role of Central Bank Operating Procedures in an Economy with Productive Government Spending (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:504.01

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