Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/153047 
Year of Publication: 
2006
Series/Report no.: 
ECB Working Paper No. 613
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We develop and estimate a stylized micro-founded model of the US economy. Next we compute the parameters of a simple interest rate policy rule that maximizes the unconditional mean of utility. We show that such a welfare-based rule lies close to the Taylor efficiency frontier. A counterfactual analysis assesses to what extent using such a rule as a guideline for monetary policy would have helped to avoid the inflationary swings of the 1970s and reduce the severity of boom and bust cycles. The paper also provides estimates of the welfare implications of business cycle variability and discusses their relevance.
Subjects: 
competition
Markups
monetary policy
Taylor Rule
JEL: 
C51
E31
E52
Document Type: 
Working Paper

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