Evaluating the effectiveness of monetary reforms |
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Authors: | Arthur J Rolnick |
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Institution: | Federal Reserve Bank of Minneapolis, Minneapolis, MN 55480, U.S.A. |
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Abstract: | Using a monthly model of the economy, containing a detailed financial sector, various monetary reforms are evaluated in a stochastic setting. The setting is stochastic because parameters must be estimated from finite data sets and because unexplained residuals exist. The objective function is a single-period, simple quadratic function in income. The problem then reduces to finding the opportunity locus (mean-variance curve) corresponding to each reform; the more effective the reform the more favorable the mean-variance tradeoff. The general finding is that most of the reforms considered are effective, but their impact is not very significant. |
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