Effective Monetary Policy Strategies in New Keynesian Models: A Re-examination

Hess Chung, Edward Herbst and Michael Kiley

No 20611, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We explore the importance of the nature of nominal price and wage adjustment for the design of effective monetary policy strategies, especially at the zero lower bound. Our analysis suggests that sticky-price and sticky-information models fit standard macroeconomic time series comparably well. However, the model with information rigidity responds differently to anticipated shocks and persistent zero-lower bound episodes - to a degree important for monetary policy and for understanding the effects of fundamental disturbances when monetary policy cannot adjust. These differences may be important for understanding other policy issues as well, such as fiscal multipliers. Despite these differences, many aspects of effective policy strategy are common across the two models: In particular, highly inertial interest rate rules that respond to nominal income or the price level perform well, even when hit by adverse supply shocks or large demand shocks that induce the zero-lower bound. Rules that respond to the level or change in the output gap can perform poorly under those conditions.

JEL-codes: E31 E37 E52 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published as Hess Chung & Edward Herbst & Michael T. Kiley, 2015. "Effective Monetary Policy Strategies in New Keynesian Models: A Reexamination," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 289 - 344.

Downloads: (external link)
http://www.nber.org/papers/w20611.pdf (application/pdf)

Related works:
Journal Article: Effective Monetary Policy Strategies in New Keynesian Models: A Reexamination (2015)
Chapter: Effective Monetary Policy Strategies in New Keynesian Models: A Reexamination (2014)
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:nbr:nberwo:20611

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w20611

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().