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The forward-looking model: the closed economy

In: Optimal Monetary Policy under Uncertainty, Second Edition

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Abstract

Chapter 9 presents the core of the canonical closed-economy New Keynesian model which consists of a forward-looking IS relation and a forward-looking Phillips Curve. This chapter also describes how an optimizing central bank sets up the target rule that characterizes the conduct of optimal monetary policy. Optimal monetary policy is discussed in terms of simple commitment and discretion. The chapter also considers issues in the design of optimal policy that deal with the implementation of monetary policy via a target rule or an optimal instrument rule. A discussion of simple instrument rules such as the Taylor rule concludes the discussion of policy rules. Other topics discussed in this chapter bear on the implications for optimal policy of a flattening Phillips Curve and the existence of a cost channel in the Phillips Curve.

Suggested Citation

  • ., 2019. "The forward-looking model: the closed economy," Chapters, in: Optimal Monetary Policy under Uncertainty, Second Edition, chapter 9, pages 159-193, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:16504_9
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    Cited by:

    1. Lim, Guanie & Li, Chen & Adi Syailendra, Emirza, 2021. "Why is it so hard to push Chinese railway projects in Southeast Asia? The role of domestic politics in Malaysia and Indonesia," World Development, Elsevier, vol. 138(C).

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    Economics and Finance;

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