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Estimates of the Effectiveness of Monetary Policy

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  • Ray Fair

Abstract

This paper examines various interest rate rules, as well as policies derived by solving optimal control problems, for their ability to dampen economic fluctuations caused by random shocks. A tax rate rule is also considered. A multicountry econometric model is used for the experiments. The results differ sharply from those obtained using recent models in which the coefficient on inflation in the nominal interest rate rule must be greater than one in order for the economy to be stable.

Suggested Citation

  • Ray Fair, 2001. "Estimates of the Effectiveness of Monetary Policy," Yale School of Management Working Papers ysm205, Yale School of Management, revised 01 Aug 2007.
    • Handle: RePEc:ysm:wpaper:ysm205
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    File URL: https://repec.som.yale.edu/icfpub/publications/2417.pdf
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    References listed on IDEAS

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    1. John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14, National Bureau of Economic Research, Inc.
    2. Bennett T. McCallum & Edward Nelson, 1999. "Performance of Operational Policy Rules in an Estimated Semiclassical Structural Model," NBER Chapters, in: Monetary Policy Rules, pages 15-56, National Bureau of Economic Research, Inc.
    3. James W. Christian, 1968. "A Further Analysis Of The Objectives Of American Monetary Policy," Journal of Finance, American Finance Association, vol. 23(3), pages 465-477, June.
    4. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348, National Bureau of Economic Research, Inc.
    5. Glenn Rudebusch & Lars E.O. Svensson, 1999. "Policy Rules for Inflation Targeting," NBER Chapters, in: Monetary Policy Rules, pages 203-262, National Bureau of Economic Research, Inc.
    6. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1.
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    Keywords

    Monetary Policy; Interest Rate Rules;

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