Title Capacity constraints, inflation and the transmission mechanism : forward-looking versus myopic policy rules / prepared by Peter Clark, Douglas Laxton, and David Rose

Published Washington, D.C. : International Monetary Fund, 1995

Click on the following:
IMF eLibrary

Copies

Description 1 online resource (iii, 29 pages) : illustrations Series IMF working paper ; 95/75 IMF working paper ; 95/75. Summary Annotation This paper develops a small model of the output-inflation process in the United States in order to examine the implications of alternative monetary policy rules. In particular, two types of policy rules are considered; a myopic rule where interest rates respond contemporaneously to output and inflation and a forward-looking policy rule that exploits information about the nature of transmission mechanism in the setting of interest rates. the model has two key features. First, there are significant lags between interest rates and aggregate demand conditions. Second, the model is based on an asymmetric model of inflation where positive deviations of aggregate demand from potential are more inflationary than negative deviations are disinflationary. As a consequence of this asymmetry, a policymaker that follows a myopic policy rule and allows the economy to overheat periodically will be forced to impose large recessions on the economy to keep inflation under control. the paper shows that the estimated degree of asymmetry implies that myopic policies can result in significant permanent losses in output. By contrast, policymakers that follow a forward-looking policy rule that avoids overheating will not only reduce the variance of output but also raise the mean level of output Bibliography Includes bibliographical references (pages 28-29) Notes Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212 MiAaHDL English digitized 2010 HathiTrust Digital Library committed to preserve pda MiAaHDL Print version record Subject Monetary policy -- United States -- Mathematical models Interest rates -- Mathematical models Interest rates -- Mathematical models. Monetary policy -- Mathematical models. United States. Form Electronic book Author Laxton, Douglas, author. Rose, David E., author. International Monetary Fund. Research Department, issuing body. ISBN 1455264520 9781455264520 1462348971 9781462348978 1455226297 9781455226290 1281387398 9781281387394 9786613779991 6613779997

  Permalink