Efficient rules for monetary policy

Laurence Ball

No G97/3, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: This paper defines an efficient rule for monetary policy as one that minimises a weighted sum of output variance and inflation variance. It derives several results about the efficiency of alternative rules in a simple macroeconomic model. First, efficient rules can be expressed as "Taylor rules" in which interest rates respond to output and inflation. But the coefficients in efficient Taylor rules differ from the coefficients that fit actual policy in the United States. Second, inflation targets are efficient. Indeed, the set of efficient rules is equivalent to the set of inflation-target policies with different speeds of adjustment. Finally, nominal-income targets are not merely inefficient, but disastrous: they imply that output and inflation have infinite variances.

JEL-codes: E30 E32 E52 (search for similar items in EconPapers)
Pages: 22p
Date: 1997-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (139)

Downloads: (external link)
http://www.rbnz.govt.nz/-/media/ReserveBank/Files/ ... apers/1997/g97-3.pdf

Related works:
Journal Article: Efficient Rules for Monetary Policy (1999)
Working Paper: Efficient Rules for Monetary Policy (1997)
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:nzb:nzbdps:1997/03

Access Statistics for this paper

More papers in Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand Contact information at EDIRC.
Bibliographic data for series maintained by Reserve Bank of New Zealand Knowledge Centre ().