Real-sector parameter instability and the optimal choice of monetary policy |
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Authors: | MJ Driscoll JL Ford |
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Institution: | University of Birmingham, England |
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Abstract: | In this paper we consider the effects of uncertainty upon the optimum choice of monetary policy instrument. Specifically we extend the work of Poole (1970), and others, to allow for the existence of multiplicative as well as additive stochastic coefficients in the structural equations of the standard IS-LM macroeconomic model. We demonstrate that the commonly accepted notion that money-stock control is superior to interest-rate control when the IS schedule is stochastic is not always valid. |
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