Optimal Constrained Interest Rate Rules
Bruce McGough () and
George Evans ()
No 134, Computing in Economics and Finance 2004 from Society for Computational Economics
The monetary policy literature has recently devoted considerable attention to Taylor-type rules, in which the interest rate set by the central bank depends on measures of inï¬‚ation and aggregate output. We show that if policy-makers attempt to choose the optimal rule within a Taylor-type class they may be led to rules that generate indeterminacy and/or instability under learning. This problem is compounded by uncertainty about structural parameters. We advocate a procedure in which policy-makers restrict attention to rules that lie in the determinate stable region for all plausible calibrations, and which minimize the expected loss, computed using structural parameter priors, subject to this constraint
Keywords: Monetary Policy; Taylor Rules; Indeterminacy; E-stability; parameter uncertainty; robust rules. (search for similar items in EconPapers)
JEL-codes: D83 E32 E52 (search for similar items in EconPapers)
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Journal Article: Optimal Constrained Interest-Rate Rules (2007)
Journal Article: Optimal Constrained Interest‐Rate Rules (2007)
Working Paper: Optimal Constrained Interest-rate Rules (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf4:134
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