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Title:Optimal interest rate rules and inflation stabilization versus price-level stabilization PDF Logo
Authors:Giannoni, Marc P.
Issue Date:2012
Series/Report no.:Staff Report, Federal Reserve Bank of New York 546
Abstract:This paper compares the properties of interest rate rules such as simple Taylor rules and rules that respond to price-level fluctuations - called Wicksellian rules - in a basic forward-looking model. By introducing appropriate history dependence in policy, Wicksellian rules perform better than optimal Taylor rules in terms of welfare and robustness to alternative shock processes, and they are less prone to equilibrium indeterminacy. A simple Wicksellian rule augmented with a high degree of interest rate inertia resembles a robustly optimal rule - that is, a monetary policy rule that implements the optimal plan and is also completely robust to the specification of exogenous shock processes.
Subjects:optimal monetary policy
Taylor rule
robust policy
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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