Effectiveness of history-dependent monetary policy |
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| Institution: | 1. Bank of Japan, 2-1-1, Hongokucho, Nihonbashi, Chuo-ku, Tokyo 103-8660, Japan;2. Board of Governors of the Federal Reserve System, Washington, DC 20551, USA;3. Carnegie Mellon University, Pittsburgh, PA 15213, USA;1. School of Urban and Environmental Engineering, Ulsan National Institute of Science and Technology (UNIST), Ulsan, Republic of Korea;2. Department of Architectural Engineering, Sejong University, Seoul, Republic of Korea;3. Department of Architectural Engineering, Hanyang University, Seoul, Republic of Korea;4. Residential Structural Team, Samsung C&T Corporation, Seoul, Republic of Korea;1. University of Toronto, Toronto, Ontario M5S 3G3, Canada;2. University of Massachusetts Boston, Boston, MA 02125, USA;3. Harvard University, Cambridge, MA 02138, USA;1. Department of Economics and Finance, Institute for Advanced Studies, Stumpergasse 56, A-1060 Vienna, Austria;2. IREBS, University of Regensburg, Universitaetstrasse 31, 93053 Regensburg, Germany;3. Institute for Advanced Studies, Austria;4. Department of Economics, University of California, Davis, CA 95616, United States;1. State Grid Anhui Electric Power Company Economic Research Institute, No. 1599, Huaining Street, Hefei, 230071, Anhui, China;2. Power Economic Research Room, Beijing Economy World Research Institute, Room 522, Bailian Mansion, No. 17 South Jianhua Road, 100022, Beijing, China;1. Department of Psychology, The Hebrew University of Jerusalem, Israel;2. Federmann Center for the Study of Rationality, The Hebrew University of Jerusalem, Israel;3. Edmond & Lily Safra Center for Brain Sciences, The Hebrew University of Jerusalem, Israel |
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| Abstract: | In this paper, we evaluate the effectiveness of history-dependent monetary policy, focusing on the design of targeting regimes and simple policy rules. Our quantitative analysis is based on a small estimated forward-looking model of the Japanese economy with a hybrid Phillips curve. Our main findings are: (1) History-dependent targeting regimes, such as price level targeting and income growth targeting, outperform inflation targeting; (2) Committing to a simple history-dependent policy rule results in nearly the same social welfare as the optimal delegation of price level targeting and income growth targeting; (3) The central bank can achieve almost the same performance as the optimal commitment policy by adopting the first difference hybrid policy rule in which the change in interest rate responds to inflation, output gap, and real income growth rate. J. Japanese Int. Economies 18 (3) (2004) 330–361. |
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