An inventory of simple monetary policy rules in a New Keynesian macroeconomic model |
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| Institution: | 1. Department of Economics, The Johns Hopkins University, Mergenthaler Hall, 3400 N. Charles St., Baltimore, MD 21230, USA;2. Department of Economics, University of Bologna, 2, Piazza Scaravilli - 40126 Bologna, BO, Italy;1. Department of Economics, University of Texas at Austin. 2225 Speedway, Stop C3100, Austin, TX 78712, United States;2. Department of Economics, Seoul National University, South Korea;3. Department of Economics, University of Illinois at Urbana-Champaign, United States and CAMA, Australia;1. Fraunhofer-Institute for Systems and Innovation Research ISI, Breslauer Str. 48, 76139 Karlsruhe, Germany;2. Institute for Industrial Production (IIP), Karlsruhe Institute of Technology, Hertzstr. 16, 76187 Karlsruhe, Germany;3. WZL – Chair of Manufacturing Technology, RWTH Aachen University, Steinbachstr. 19, 52074 Aachen, Germany;1. School of Management, China institute for Studies in Energy Policy, Xiamen University, Fujian, 361005, PR China;2. Innovation Laboratory for Sciences and Technologies of Energy Materials of Fujian Province (IKKEM), Xiamen, Fujian 361101, PR China |
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| Abstract: | We derive necessary and sufficient conditions for simple monetary policy rules that guarantee equilibrium determinacy in the New Keynesian monetary model. Our modeling framework is derived from a fully specified optimization model that is amenable to analytical characterisation. The monetary rules analyzed are variants of the basic Taylor rules ranging from simple inflation targeting (current, forward, backward) to canonical Taylor rules with and without inertial nominal interest rates. We establish that determinacy obtains for a wide range of policy parameters, especially when the monetary authority targets output and smoothes interest rates. Contrary to other results in the literature, we do not find a case for super-inertial interest rate policy. |
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