Optimal Monetary Policy Under Bounded Rationality

Author : Jonathan Benchimol
Publisher : International Monetary Fund
ISBN 13 : 1513511343
Total Pages : 52 pages
Book Rating : 4.44/5 ( download)

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Download or read book Optimal Monetary Policy Under Bounded Rationality written by Jonathan Benchimol and published by International Monetary Fund. This book was released on 2019-08-02 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The form of bounded rationality characterizing the representative agent is key in the choice of the optimal monetary policy regime. While inflation targeting prevails for myopia that distorts agents' inflation expectations, price level targeting emerges as the optimal policy under myopia regarding the output gap, revenue, or interest rate. To the extent that bygones are not bygones under price level targeting, rational inflation expectations is a minimal condition for optimality in a behavioral world. Instrument rules implementation of this optimal policy is shown to be infeasible, questioning the ability of simple rules à la Taylor (1993) to assist the conduct of monetary policy. Bounded rationality is not necessarily associated with welfare losses.

Author : Jonathan Benchimol
Publisher :
ISBN 13 :
Total Pages : 51 pages
Book Rating : 4.92/5 ( download)

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Download or read book Optimal Monetary Poicy Under Bounded Rationality written by Jonathan Benchimol and published by . This book was released on 2019 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: The form of bounded rationality characterizing the representative agent is key in the choice of the optimal monetary policy regime. While inflation targeting prevails for myopia that distorts agents' inflation expectations, price level targeting emerges as the optimal policy under myopia regarding the output gap, revenue, or interest rate. To the extent that bygones are not bygones under price level targeting, rational inflation expectations is a minimal condition for optimality in a behavioral world. Instrument rules implementation of this optimal policy is shown to be infeasible, questioning the ability of simple rules à la Taylor (1993) to assist the conduct of monetary policy. Bounded rationality is not necessarily associated with welfare losses.

Author : Richard T. Froyen
Publisher : Edward Elgar Publishing
ISBN 13 : 1784717193
Total Pages : 466 pages
Book Rating : 4.93/5 ( download)

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Download or read book Optimal Monetary Policy under Uncertainty, Second Edition written by Richard T. Froyen and published by Edward Elgar Publishing. This book was released on 2019 with total page 466 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a thorough survey of the model-based literature on optimal monetary in a stochastic setting. The survey begins with the literature of the 1970s which focused on the information problem in policy design and extends to the New Keynesian approach of the 1990s which centered on evaluating alternative targeting strategies. New to the second edition is consideration of research since the world financial crisis on the role of financial markets and institutions in the conduct of monetary policy.

Author : Stefano Eusepi
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.48/5 ( download)

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Download or read book Optimal Monetary Policy and Bounded Rationality written by Stefano Eusepi and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is widely recognised that the market and the monetary authorities face a high degree of uncertainty about the appropriate models to use for policy decisions and forecasting. This paper reviews the main theoretical results of the literature on bounded rationality and discusses the implications for the design of optimal policy rules. In the final section, we propose an original method to evaluate policy rules that are 'robust' to uncertainty about the expectation formation process.

Author : Xavier Gabaix
Publisher :
ISBN 13 :
Total Pages : 55 pages
Book Rating : 4.21/5 ( download)

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Download or read book A Behavioral New Keynesian Model written by Xavier Gabaix and published by . This book was released on 2016 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a framework for analyzing how bounded rationality affects monetary and fiscal policy. The model is a tractable and parsimonious enrichment of the widely-used New Keynesian model – with one main new parameter, which quantifies how poorly agents understand future policy and its impact. That myopia parameter, in turn, affects the power of monetary and fiscal policy in a microfounded general equilibrium. A number of consequences emerge. (i) Fiscal stimulus or \helicopter drops of money" are powerful and, indeed, pull the economy out of the zero lower bound. More generally, the model allows for the joint analysis of optimal monetary and fiscal policy. (ii) The Taylor principle is strongly modified: even with passive monetary policy, equilibrium is determinate, whereas the traditional rational model yields multiple equilibria, which reduce its predictive power, and generates indeterminate economies at the zero lower bound (ZLB). (iii) The ZLB is much less costly than in the traditional model. (iv) The model helps solve the “forward guidance puzzle”: the fact that in the rational model, shocks to very distant rates have a very powerful impact on today's consumption and inflation: because agents are partially myopic, this effect is muted. (v) Optimal policy changes qualitatively: the optimal commitment policy with rational agents demands “nominal GDP targeting”; this is not the case with behavioral firms, as the benefits of commitment are less strong with myopic forms. (vi) The model is “neo-Fisherian” in the long run, but Keynesian in the short run: a permanent rise in the interest rate decreases inflation in the short run but increases it in the long run. The non-standard behavioral features of the model seem warranted by the empirical evidence.

Author : Ben S. Bernanke
Publisher : University of Chicago Press
ISBN 13 : 0226044734
Total Pages : 469 pages
Book Rating : 4.36/5 ( download)

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Download or read book The Inflation-Targeting Debate written by Ben S. Bernanke and published by University of Chicago Press. This book was released on 2007-11-01 with total page 469 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the past fifteen years, a significant number of industrialized and middle-income countries have adopted inflation targeting as a framework for monetary policymaking. As the name suggests, in such inflation-targeting regimes, the central bank is responsible for achieving a publicly announced target for the inflation rate. While the objective of controlling inflation enjoys wide support among both academic experts and policymakers, and while the countries that have followed this model have generally experienced good macroeconomic outcomes, many important questions about inflation targeting remain. In Inflation Targeting, a distinguished group of contributors explores the many underexamined dimensions of inflation targeting—its potential, its successes, and its limitations—from both a theoretical and an empirical standpoint, and for both developed and emerging economies. The volume opens with a discussion of the optimal formulation of inflation-targeting policy and continues with a debate about the desirability of such a model for the United States. The concluding chapters discuss the special problems of inflation targeting in emerging markets, including the Czech Republic, Poland, and Hungary.

Author : Giuseppe Ferrero
Publisher :
ISBN 13 :
Total Pages : 88 pages
Book Rating : 4.19/5 ( download)

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Download or read book Monetary Policy and the Transition to Rational Expectations written by Giuseppe Ferrero and published by . This book was released on 2004 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Author : Michael Dobrew
Publisher :
ISBN 13 : 9783957299499
Total Pages : 0 pages
Book Rating : 4.97/5 ( download)

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Download or read book Monetary Policy Rules Under Bounded Rationality written by Michael Dobrew and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Author : Alfred V. Guender
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.73/5 ( download)

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Download or read book Optimal Monetary Policy Under Inflation Targeting Based on an Instrument Rule written by Alfred V. Guender and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Author : Peter N. Ireland
Publisher :
ISBN 13 :
Total Pages : 9 pages
Book Rating : 4.70/5 ( download)

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Download or read book Irrational Expectations and Econometric Practice Discussion of Orphanides and Williams, 'Inflation Scares and Forecast-Based Monetary Policy' written by Peter N. Ireland and published by . This book was released on 2015 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: Athanasios Orphanides and John C. Williams' excellent conference paper, “Inflation Scares and Forecast-Based Monetary Policy,” contributes importantly to the new and rapidly growing branch of the literature on bounded rationality and learning in macroeconomics. Their paper, like many others, derives interesting and useful theoretical results that show how the introduction of bounded rationality and learning impacts on the effects of monetary policy shocks and the characteristics of optimal monetary policy rules. This note suggests that some additional empirical work -- some “irrational expectations econometrics,” if you will -- might serve to make these purely theoretical results seem more relevant and convincing.