Monetary Policy Rules

Michael T. Belongia · Peter N. Ireland

This 2022 Journal of Economic Dynamics & Control paper by Michael Belongia and Peter Ireland asks whether a policy rule that steers the growth rate of money, rather than the short-term nominal …

Régis Barnichon · Geert Mesters

This 2023 American Economic Review paper by Régis Barnichon and Geert Mesters develops a theoretical framework, with an empirical application to U.S. monetary policy, for evaluating whether current …

Jess Benhabib · Stephanie Schmitt-Grohé · Martín Uribe

Because a Taylor-type interest-rate rule must be consistent with the zero nominal-interest-rate bound, it always admits a second, unintended steady state with low or negative inflation alongside the …

John H. Cochrane

Cochrane argues that the standard new-Keynesian account of how a Taylor rule pins down inflation is incomplete -- it works only by assuming the government will follow policies that amount to a threat …

Adrien Auclert · Evan Majic · Matthew Rognlie · Ludwig Straub

Auclert, Majic, Rognlie, and Straub show that the sequence-space Jacobians used to solve macro models with rich heterogeneity have a special "quasi-Toeplitz" mathematical structure, which yields a …

John B. Taylor

This 1993 Carnegie-Rochester Conference paper by John Taylor introduces what became known as the "Taylor rule" — a simple guideline for setting the federal funds rate, r = p + 0.5y + 0.5(p - 2) + 2, …

François R. Velde · Marcelo Veracierto

Written on the eve of Argentina's 2001-02 currency-board collapse, this Chicago Fed policy piece examines Argentina's 1991-99 dollar peg as a test case for the costs and benefits of full …

Timothy Cogley · Thomas J. Sargent

This 2005 Review of Economic Dynamics paper by Timothy Cogley and Thomas J. Sargent extends their earlier Cogley-Sargent (2001) time-varying-parameter VAR (TVP-VAR) of postwar U.S.

Stefania Albanesi · V. V. Chari · Lawrence J. Christiano

Embedding the Kydland-Prescott/Barro-Gordon time-inconsistency logic into a standard sticky-price, cash-credit-goods general equilibrium model, this paper shows the model generically has either two …

Michael Woodford

Woodford argues that commitment to a sound monetary policy rule, such as a Taylor rule, cannot by itself guarantee price stability, because Ricardian equivalence fails to make fiscal policy irrelevant …

Sergio de Ferra · Kurt Mitman · Federica Romei

This paper builds a Heterogeneous-Agent New-Keynesian Small Open Model Economy (HANKSOME), calibrated to Hungary's pre-2009 current account boom and sudden-stop reversal, and shows that when …

Jeffery D. Amato · Thomas Laubach

Adding habit formation in consumption to an optimising sticky-price model changes both the IS curve and the Phillips curve, makes the variance of output itself -- not only the output gap -- …

Robert E. Lucas, Jr.

Surveying and extending the Bailey-Friedman tradition of estimating the welfare cost of inflation, Lucas fits U.S. money-demand data for 1900-1994 and estimates that reducing annual inflation from 10 …

Maximilian Grimm · Òscar Jordà · Moritz Schularick · Alan M. Taylor

This paper provides the first long-run causal evidence that a persistently loose stance of monetary policy — defined as extended periods of low interest rates relative to the neutral rate — …

Frédéric Boissay · Fabrice Collard · Jordi Galí · Cristina Manea

This paper asks whether a central bank should deviate from strict inflation targeting (SIT) to promote financial stability, studying the question in a textbook New Keynesian model augmented with …

Jordi Galí · Tommaso Monacelli

This paper builds a tractable small open economy version of the Calvo sticky-price New Keynesian model, shows its equilibrium reduces to a two-equation system in domestic inflation and the output gap …

Florin O. Bilbiie

THANK, a tractable heterogeneous-agent New Keynesian model built around a single statistic for the cyclicality of income inequality, shows that the conditions needed for HANK-style amplification of …

Cristina Arellano · Yan Bai · Gabriel Mihalache

This paper develops a New Keynesian small open economy model with endogenous sovereign default — the NK-Default framework — and uses it to study the interplay between monetary policy and sovereign …

Sandra Daudignon · Oreste Tristani

This paper analyzes how monetary policy should respond to a long-run natural interest rate that can drift permanently — following a bounded random walk with upper bound 3 percent and lower bound 0 …

William Poole

This 1988 Journal of Economic Perspectives paper by William Poole is a survey and analytical essay -- not a structural estimation exercise with a formal identification strategy -- that draws lessons …

Richard Clarida · Jordi Galí · Mark Gertler

Estimating a forward-looking Federal Reserve policy rule separately for 1960-79 and 1979-96, this paper finds that the Fed let real short-term rates fall as expected inflation rose before Volcker, but …

Athanasios Orphanides

This 2001 American Economic Review paper by Athanasios Orphanides asks how large the informational problem is when Taylor-type interest rate rules are implemented with the data actually available to …

Athanasios Orphanides

Re-estimating the Clarida-Galí-Gertler forward-looking Fed policy rule using only the real-time Greenbook forecasts available to the FOMC at the time, rather than revised after-the-fact data, this …

Michael T. Kiley

This paper examines optimal monetary policy under discretion when the loss function is asymmetric — placing greater weight on employment shortfalls than on equivalently sized employment strength. The …

Sushant Acharya · Edouard Challe · Keshav Dogra

An analytically tractable heterogeneous-agent New Keynesian (HANK) model in which a utilitarian planner's optimal monetary policy departs from the representative-agent benchmark because interest rates …

Eduardo Dávila · Andreas Schaab

This paper characterizes optimal monetary policy in a heterogeneous-agent New Keynesian (HANK) model with wage rigidity, showing that a discretionary utilitarian planner's desire to redistribute …

Christopher J. Erceg · Dale W. Henderson · Andrew T. Levin

In an optimizing-agent model where both wages and prices are set in staggered Calvo contracts, monetary policy cannot reach the allocation that would prevail under fully flexible wages and prices, …

Christopher Gust · Edward Herbst · David López-Salido

Central banks must set policy under uncertainty about how private-sector expectations form, which changes how monetary policy transmits to output and inflation. This paper studies optimal …

Alisdair McKay · Christian K. Wolf

This paper characterizes optimal monetary and fiscal policy rules in a heterogeneous-agent New Keynesian (HANK) model and finds that a "dual mandate" central bank's optimal targeting rule is identical …

Michael Woodford

Woodford shows that the price level remains determinate even under two forms of radical money-supply endogeneity long thought to destroy monetary control -- a central-bank interest-rate peg and …

Markus Haavio · Joni Heikkinen · Pirkka Jalasjoki · Juha Kilponen · Maritta Paloviita · Ilona Vänni

This paper estimates the European Central Bank's loss function directly rather than inferring it from a reaction function, using the tone of the Governing Council's press conference introductory …

Tom D. Holden

The paper proposes and analyzes real rate rules — monetary policy rules of the form i_t = r_t + φπ_t (φ > 1), where r_t is the current-period real interest rate observed via TIPS yields or inflation …

Jeffery D. Amato · Thomas Laubach

Letting a fraction of consumers and price setters replace optimisation with a backward-looking rule of thumb adds endogenous persistence to output and inflation, changes how shocks travel through a …

Finn E. Kydland · Edward C. Prescott

This 1977 Journal of Political Economy paper by Finn Kydland and Edward Prescott argues that optimal control theory -- the standard technique proposed for macroeconomic stabilization policy -- is not …

Glenn D. Rudebusch

Estimated Taylor-type policy rules typically find the Fed adjusts the funds rate only 20-30 percent of the way to its desired level each quarter, widely read as deliberate "interest rate smoothing" -- …

Milton Friedman

This 1961 Journal of Political Economy paper is Milton Friedman's reply to J. M.

John B. Taylor

This 1995 Journal of Economic Perspectives paper by John B. Taylor lays out an empirical framework for the monetary transmission mechanism and asks what it implies for the choice between fixed and …

Robert G. King

King gives a simple exposition of the "New IS-LM model" -- a three-equation system of a forward-looking IS curve, a Fisher equation, and a New Keynesian (expectational) Phillips curve, each derivable …

Marvin Goodfriend

Dividing 1987-2001 into six phases -- the post-crash inflation of 1987-90, the Gulf War disinflation, the celebrated 1994-95 preemptive tightening, the near-full-credibility long boom, the 1999-2000 …

Vadym Lepetyuk · Lilia Maliar · Serguei Maliar · John B. Taylor

When a central bank announces a policy it will not implement for some time, households and firms respond straight away. This paper measures how much of a policy's effect arrives in that anticipation …

Richard Clarida · Jordi Galí · Mark Gertler

This widely cited survey derives monetary policy design from a simple forward-looking New Keynesian model, showing that optimal policy without commitment requires raising the nominal rate more than …

Jonas E. Arias · Dario Caldara · Juan F. Rubio-Ramírez

This 2019 Journal of Monetary Economics paper by Jonas Arias, Dario Caldara, and Juan Rubio-Ramírez proposes identifying monetary policy shocks in a structural VAR by placing sign and zero …

Michael Woodford

Evaluating Taylor's interest-rate rule against an explicit optimizing New Keynesian model, this paper coins the "Taylor principle" -- that the nominal rate must eventually rise by more than any …

J. Bradford De Long

Tracing the 20th-century history of "monetarism" through four successive subspecies, De Long argues that although monetarism's most politically influential and empirically fragile form collapsed in …

Giorgio E. Primiceri

This 2005 Review of Economic Studies paper by Giorgio Primiceri develops a Bayesian time-varying-parameter structural VAR (TVP-SVAR) with stochastic volatility — allowing not just the VAR coefficients …

Marco Del Negro · Giorgio E. Primiceri

This 2015 Review of Economic Studies corrigendum identifies and fixes a flaw in the Gibbs-sampling algorithm that Primiceri (2005) used to estimate time-varying-parameter structural VARs with …

Urban Jermann · Haotian Xiang

The rapid proliferation of cryptocurrency tokens—roughly 10,000 outstanding with a total market capitalization around $3 trillion as of early 2024—raises new questions about the design of token …

Sushant Acharya · Keshav Dogra

Using an analytically tractable heterogeneous-agent New Keynesian model with CARA preferences and normally distributed idiosyncratic income risk, the paper shows that whether incomplete markets …

Olivier Coibion · Yuriy Gorodnichenko

This 2012 American Economic Journal: Macroeconomics paper by Olivier Coibion and Yuriy Gorodnichenko adjudicates between two observationally similar explanations for the federal funds rate target's …