Forward-looking behavior and optimal discretionary monetary policy

Kevin Lansing and Bharat Trehan ()

No 2001-03, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: This paper derives a closed-form solution for the optimal discretionary monetary policy in a small macroeconomic model that allows for varying degrees of forward-looking behavior. We show that a more forward-looking aggregate demand equation serves to attenuate the response to inflation and the output gap in the optimal interest rate rule. In contrast, a more forward-looking real interest rate equation serves to magnify the response to both variables. A more forward-looking Phillips curve serves to attenuate the response to inflation but magnifies the response to the output gap. ; Original title: Forward-looking behavior and the optimality of the Taylor rule.

Keywords: Monetary policy; Inflation (Finance); Taylor's rule (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.frbsf.org/economic-research/files/wp01-03bk.pdf (application/pdf)

Related works:
Journal Article: Forward-looking behavior and optimal discretionary monetary policy (2003)
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:fedfwp:2001-03

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().