Lien Laureys, Mr. Roland Meeks, Boromeus Wanengkirtyo, and Gaston Gelos
multiple sources of disturbance. Little is known about how, if at all, monetary policy should operate to reduce financial volatility in this environment. But a recent paper by Debortoli and others (2018; hereafter, DKLN) offers reasons to suspect that a straightforward translation of monetary policy messages drawn from studies based on stylized model economies to an empirically-relevant setting may not be warranted. DKLN (2018) establish that in a standard medium-scaleDSGEmodel, the optimal stabilization weight on output gap fluctuations is many times greater than in
Lien Laureys, Mr. Roland Meeks, and Boromeus Wanengkirtyo
We reconsider the design of welfare-optimal monetary policy when financing frictions impair the supply of bank credit, and when the objectives set for monetary policy must be simple enough to be implementable and allow for effective accountability. We show that a flexible inflation targeting approach that places weight on stabilizing inflation, a measure of resource utilization, and a financial variable produces welfare benefits that are almost indistinguishable from fully-optimal Ramsey policy. The macro-financial trade-off in our estimated model of the euro area turns out to be modest, implying that the effects of financial frictions can be ameliorated at little cost in terms of inflation. A range of different financial objectives and policy preferences lead to similar conclusions.
Semih Tumen, Deren Unalmis, Ibrahim Unalmis, and Ms. Filiz D Unsal
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1 This section provides a brief description of the main features of the model. For a more detailed discussion, see Appendix I and Fournier (2019) .
2 See the Selected Issues Paper “ The Appropriate
Ms. Susan S. Yang, Todd B. Walker, and Eric M. Leeper
Zubairy , S. , 2009 , “ On Fiscal Multipliers: Estimates from a MediumScaleDSGEModel ,” Manuscript ( Duke University ).
* We thank Benedict J. Clements, Jason Harris, Robert King, Aart Kraay, Justin Yifu Lin, Joana Pereira, Christopher Sleet, Abdoul Wane, an anonymous referee, and participants at a World Bank seminar for helpful comments. Earlier versions were circulated under the title “Government Investment and Fiscal Stimulus in the Short and Long Runs.” Leeper: Department of Economics, Indiana University and NBER, firstname.lastname@example.org ; Walker
. Princeton University Press , Princeton, NJ .
Zubairy , S. ( 2014 ). On fiscal multipliers: Estimates from a mediumscaleDSGEmodel . International Economic Review , 55 : 169 – 195 . 10.1111/iere.12045
We define the durables sector as the a composite of durable goods and residential investments whereas the nondurables sector comprises nondurables goods and services.
Nominal Durable Goods
Table 2.3.5 Line 3
Francesco Furlanetto, Paolo Gelain, and Marzie Taheri Sanjani
Federal Reserve Act; this includes maximum employment, stable prices, and moderate long-term interest rates.
20 Literature on optimal monetary policy has been fruitful: JPT (2013), Fendoglu (2011) , Levin, Onatski, Williams, and Williams (2005) , Schmitt-Grohe and Uribe (2007) , and Christiano, Ilut, Motto, and Rostagno (2010) compute optimal, or Ramsey, monetary policy in medium-scaleDSGEmodels. Debortoli, Maih, and Nunes (2011) also considers the loose commitment problem where policymaker’s degree of commitment is not constant.
21 The Taylor rule
Deren Unalmis, Ibrahim Unalmis, and Ms. Filiz D Unsal
the ECB and the Fed: An Investigation with a MediumScaleDSGEModel, Journal of Money, Credit, and Banking , Vol. 40 , No. 2-3 .
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