Monetary Policy Rules, Policy Space and Policy Effects
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| Title | Monetary Policy Rules, Policy Space and Policy Effects
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| Author | Jin Chunyu, Zhang Long and Hao Zhaohui |
| Organization | Jilin University；School of Finance, Southwestern University of Finance and Economics |
| Email | longzhang15@mails.jlu.edu.cn |
| Key Words | Monetary Policy Rules; Policy Space; Welfare Losses; Policy Target |
| Abstract | The implementation of monetary policy is no doubt aimed to promote the optimal allocation of resources and achieve the expected economic goal, however, inappropriate monetary policy rules will cause that there is no unique equilibrium in economic system and no realization of policy effects. In this paper, we took three monetary policy rules which are widely analyzed as the research object, and studied the policy space, the welfare losses, and the realization of policy effects of these different monetary policy rules based on the new Keynesian model. It is found that: (1) There is no constant optimal monetary policy rule, and it changed with the objective and the external environment of different economic times. (2) The Money-supply rule never will be the optimal monetary policy rule result from its’ empty policy space. (3) The Taylor rule will be the optimal monetary policy rule when the central bank hopes to stabilize the macroeconomic indicators and when the monetary policy preference is smaller. (4) The Forward-looking interest rate rule will be the optimal monetary policy rule when the central bank hopes to stimulate economic growth and when the monetary policy preference is bigger. |
| Serial Number | WP1199 |
| Time | 2017-06-23 |
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