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Optimal Monetary Policy Inertia.

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  • Woodford, M.

Abstract

The first section of this paper presents a model of the economy and poses the problem of optimal monetary policy. The second characterizes the responses of endogenous variables, including nominal interest rates, to shocks under an optimal regime, and highlights the advantages of commitment, by contrasting the optimal responses with those that would result from optimization under discrestion. Then, the next section considers the optimal assignment of an objective to a central bank with instrument but not goal) independence, that is expected to pursue its assigned goal under discretion. The last section considers the form of interest rate feedback rule that can achieve the desired dynamic responses to chocks, if the central bank's commitment to such a rule is credible. to the private sector.

Suggested Citation

  • Woodford, M., 1999. "Optimal Monetary Policy Inertia.," Papers 666, Stockholm - International Economic Studies.
    • Handle: RePEc:fth:stocin:666
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    More about this item

    Keywords

    MONETARY POLICY ; CENTRAL BANKS ; MACROECONOMICS;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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