Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192905 
Authors: 
Year of Publication: 
2018
Series/Report no.: 
Working Paper No. 296
Publisher: 
University of Zurich, Department of Economics, Zurich
Abstract: 
The target problem considers the central bank's use of optimal tools and targets for purposes of stabilization and welfare optimization. In this study, this question is answered anew in a microfounded approach. By adding imperfect information to the model of [Berentsen and Waller, 2011], a divide between an interest rate policy and a money stock policy emerges. Given this, the usefulness of each policy is analyzed, with the ultimate result being the dominance of a pro-cyclical interest rate-based policy. This finding stands in contrast to the well-known macrofounded answer of [Poole, 1970]. The inconsistency is resolved by an examination of some of the axioms underlying New Keynesian and New Monetarist models.
Subjects: 
Money
search
stabilization
monetary policy
JEL: 
E41
E52
Document Type: 
Working Paper

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