Results 1  10
of
662
Monetary Policy Rules Based on RealTime Data
 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM FINANCE AND ECONOMICS DISCUSSION PAPER SERIES
, 1997
"... In recent years, simple policy rules have received attention as a means to a more transparent and effective monetary policy. Often, however, the analysis is based on unrealistic assumptions about the timeliness of data availability. This permits rule specifications that are not operational and ignor ..."
Abstract

Cited by 307 (16 self)
 Add to MetaCart
(Show Context)
In recent years, simple policy rules have received attention as a means to a more transparent and effective monetary policy. Often, however, the analysis is based on unrealistic assumptions about the timeliness of data availability. This permits rule specifications that are not operational and ignore difficulties associated with data revisions. This paper examines the magnitude of these informational problems using Taylor's rule as an example. First, I construct a database of current quarter estimates/forecasts of the quantities required by the rule based only on information available in real time. Using this data I reconstruct the policy recommendations which would have been obtained in real time. I demonstrate that the realtime policy recommendations differ considerably from those obtained with the ex post revised data. Withinyear revisions in the policy recommendations are also quite large with a standard deviation exceeding that of the quarterly change of the federal funds rate. Further, I show that estimated policy reaction functions obtained using the ex post revised data can yield misleading descriptions of historical policy. Using Federal Reserve sta forecasts I show that in the 19871992 period simple forwardlooking specifications describe policy better than comparable Taylortype specifications, a fact that is largely obscured when the analysis is based on the ex post revised data.
2003b), “Shocks and frictions in US business cycles: a Bayesian DSGE approach”, mimeo, European Central Bank
"... In 2007 all ECB publications feature a motif taken from the €20 banknote. This paper can be downloaded without charge from ..."
Abstract

Cited by 216 (5 self)
 Add to MetaCart
(Show Context)
In 2007 all ECB publications feature a motif taken from the €20 banknote. This paper can be downloaded without charge from
Monetary Policy Evaluation with Noisy Information
, 1998
"... This paper investigates the implications of noisy information regarding the measurement of economic activity for the evaluation of monetary policy. A common implicit assumption in such evaluations is that policymakers observe the current state of the economy promptly and accurately and can therefore ..."
Abstract

Cited by 177 (25 self)
 Add to MetaCart
This paper investigates the implications of noisy information regarding the measurement of economic activity for the evaluation of monetary policy. A common implicit assumption in such evaluations is that policymakers observe the current state of the economy promptly and accurately and can therefore adjust policy based on this information. However, in reality, decisions are made in real time when there is considerable uncertainty about the true state of affairs in the economy. Policy must be made with partial information. Using a simple model of the U.S. economy, I show that failing to account for the actual level of information noise in the historical data provides a seriously distorted picture of feasible macroeconomic outcomes and produces inefficient policy rules. Naive adoption of policies identified as efficient when such information noise is ignored results in macroeconomic performance worse than actual experience. When the noise content of the data is properly taken into account, policy reactions are cautious and less sensitive to the apparent imbalances in the unfiltered data. The resulting policy prescriptions reflect the recognition that excessively activist policy can increase rather than decrease economic instability.
Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty
 ECONOMIC JOURNAL
, 2002
"... Nominal income rules for monetary policy have long been debated, but two issues are of particular recent interest. First, there are questions about the performance of such rules over a range of plausible empirical models – especially models with and without explicit rational inflation expectations. ..."
Abstract

Cited by 149 (13 self)
 Add to MetaCart
Nominal income rules for monetary policy have long been debated, but two issues are of particular recent interest. First, there are questions about the performance of such rules over a range of plausible empirical models – especially models with and without explicit rational inflation expectations. Second, there are questions about the performance of these rules in real time using the type of data that is actually available contemporaneously to policy makers rather than final revised data. This paper determines optimal monetary policy rules in the presence of such model uncertainty and realtime data uncertainty and finds only a limited role for nominal output growth.
Monetary Policy Rules, Macroeconomic STABILITY AND INFLATION: A VIEW FROM THE TRENCHES
, 2001
"... ..."
Robust Monetary Policy under Model Uncertainty in a Small Model of the US Economy. Forthcoming in Macroeconomic Dynamics
, 1999
"... One of the prominent ways to analyze the robustness of monetary policy under model uncertainty consists of the following three steps. First, choose a reference model of the economy. Next, define a set of perturbations around this model, where the set is structured so that the uncertainty is focused ..."
Abstract

Cited by 107 (2 self)
 Add to MetaCart
One of the prominent ways to analyze the robustness of monetary policy under model uncertainty consists of the following three steps. First, choose a reference model of the economy. Next, define a set of perturbations around this model, where the set is structured so that the uncertainty is focused on potentially important weaknesses of the reference model. Finally, choose policy so that it works best for the worst model from the set. Previous applications of this approach allowed only for purely backwardlooking models. This paper extends the analysis of robustness to models that may include forwardlooking components. Empirical part of the paper studies simple policy rules under model, data and shock uncertainty in a small model of the US economy with rational expectations. Key words: structured uncertainty, rational expectations, robustness.
Openness, imperfect exchange rate passthrough and monetary policy
 FORTHCOMING IN JOURNAL OF MONETARY ECONOMICS
"... This paper analyses the implications of imperfect exchange rate passthrough for optimal monetary policy in a linearised openeconomy dynamic general equilibrium model calibrated to euro area data. Imperfect exchange rate pass through is modelled by assuming sticky import price behaviour. The degree ..."
Abstract

Cited by 105 (5 self)
 Add to MetaCart
This paper analyses the implications of imperfect exchange rate passthrough for optimal monetary policy in a linearised openeconomy dynamic general equilibrium model calibrated to euro area data. Imperfect exchange rate pass through is modelled by assuming sticky import price behaviour. The degree of domestic and import price stickiness is estimated by reproducing the empirical identified impulse response of a monetary policy and exchange rate shock conditional on the response of output, net trade and the exchange rate. It is shown that a central bank that wants to minimise the resource costs of staggered price setting will aim at minimising a weighted average of domestic and import price inflation.
2003), “Measuring the Natural Rate of Interest
 Review of Economics and Statistics
"... A key variable for the conduct of monetary policy is the natural rate of interest { the real interest rate consistent with output equaling potential and stable inflation. Economic theory implies that the natural rate of interest varies over time and depends on the trend growth rate of output. In thi ..."
Abstract

Cited by 103 (21 self)
 Add to MetaCart
A key variable for the conduct of monetary policy is the natural rate of interest { the real interest rate consistent with output equaling potential and stable inflation. Economic theory implies that the natural rate of interest varies over time and depends on the trend growth rate of output. In this paper we apply the Kalman lter to jointly estimate the natural rate of interest, potential output, and its trend growth rate, and examine the empirical relationship between these estimated unobserved series. We nd substantial variation in the natural rate of interest over the past four decades in the United States. Our natural rate estimates vary about oneforone with changes in the trend growth rate. We show that policymakers ’ mismeasurement of the natural rate of interest can cause a signicant deterioration in macroeconomic stabilization.
Output Gap Uncertainty: Does it Matter for the Taylor Rule
 Monetary Policy Under Uncertainty
, 1999
"... International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. Copies of publications ..."
Abstract

Cited by 100 (1 self)
 Add to MetaCart
International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. Copies of publications are available from: