Monetary policy rules

“Inflation Targeting,” in Friedman, Benjamin M., and Michael Woodford, eds., Handbook of Monetary Economics, Volume 3b, chapter 22, Elsevier. PDFAbstract.
The chapter discusses the history, theory, practice, and future of inflation targeting.

“Optimal Monetary Policy,” keynote lecture at the Workshop on Optimal Monetary Policy, Norges Bank, November 21-22, 2008, slides.
The line: Optimal monetary policy can in theory be seen as equivalent to choosing an optimal policy function, but it can in practice better be seen as choosing an optimal projection of the instrument rate, inflation, and resource utilization in a set of feasible projections so as to minimize an intertemporal loss functin corresponding to central-bank objectives.

“Monetary Policy Trade-Offs in an Estimated Open-Economy DSGE Model” (with Malin Adolfson and Stefan Laséen, Sveriges Riksbank, and Jesper Lindé, Federal Reserve Board), May 2012, PDFAbstract.
The line: We examine the transmission of shocks under optimal and other policies in Ramses, the Riksbank’s open-economy medium-sized DSGE model for forecasting and policy analysis.

“Optimal Monetary Policy in an Operational Medium-Sized DSGE Model” (with Malin Adolfson, Stefan Laséen, and Jesper Lindé, Sveriges Riksbank), July 2010, Journal of Money, Credit and Banking, forthcoming. PDFAbstractTechnical AppendixLonger June 2009 version.
The line: We show how to construct optimal policy simulation in Ramses, the Riksbank’s open-economy medium-sized DSGE model for forecasting and policy analysis.  Optimal policy under commitment fits Riksbank past policy better than simple instrument rule without policy shock

“What Have Economists Learned about Monetary Policy over the past 50 Years?,” in Herrman, Heinz, ed., Monetary Policy Over Fifty Years: Experiences and Lessons, Routledge, 2009. PDFPress release, September 2008.
The line: A personal view about the research on monetary policy that is most relevant to practical monetary policy, starting with Milton Friedman’s Presidential Address in December 1967.

“Current Account Dynamics and Monetary Policy” (with Andrea Ferrero, Federal Reserve Bank of New York, and Mark Gertler, New York University), September 2007, PDFAbstract.
The line: For different scenarios for U.S.-relevant current-account adjustment in a two-country DSGE model, it is shown that the behavior of domestic variables such as inflation and output is quite sensitive to the monetary policy regime, whereas the behavior of international variables such as the current account and the real exchange rate is less so.

“Bayesian and Adaptive Optimal Policy under Model Uncertainty” (with Noah Williams, University of Wisconsin), September 2007, PDFAbstract.
The line: Bayesian optimal policy (which includes both learning and experimentation) in a both general and tractable case of model uncertainty is compared to adaptive optimal policy (which includes learning but excludes experimentation), and the results indicate that optimal experimentation brings only modest gains above the learning under adaptive optimal policy.

“Monetary Policy with Model Uncertainty: Distribution Forecast Targeting” (with Noah Williams, University of Wisconsin), May 2007, PDFAbstract and Matlab programs.
The line: A very flexible, powerful, and yet tractable framework for the analysis and determination of optimal monetary policy under  model uncertainty and certainty non-equivalence is introduced and shown to incorporate a large variety of different configurations of uncertainty and central-bank judgment

“Optimal Inflation Targeting: Further Developments of Inflation Targeting,” in Mishkin, Frederic, and Klaus Schmidt-Hebbel (eds.) (2007), Monetary Policy under Inflation Targeting, Banco Central de Chile, PDFAbstract.
The line: Substantial progress can be made by inflation-targeting central banks by (1) employing an explicit intertemporal loss function, (2) making explicit decisions on optimal projection paths of the instrument rate, (3) publishing such projections, and (4) incorporating judgment and model uncertainty in a systematic way.

“Optimal Policy Projections” (with Robert J. Tetlow, Federal Reserve Board), August 2005, International Journal of Central Banking 1(3) (2005) 177-207, PDFAbstract.
The line: Optimal Policy Projections – a method to give advice to policymakers on optimal monetary policy, taking central-bank judgment into account – is demonstrated with the Fed’s FRB/US model and two Greenbook forecasts.

“Monetary Policy with Judgment: Forecast Targeting,” International Journal of Central Banking 1(1) (2005) 1-54, PDFAbstractAppendix.
The line: Monetary policy that uses central-bank judgment – information, knowledge, and views outside the scope of a particular model – may perform much better than monetary policy that disregards judgment and follows a simple instrument rule.

“Optimization under Commitment and Discretion, the Recursive Saddlepoint Method, and Targeting Rules and Instrument Rules: Lecture Notes,” March 2010, PDF.
The line: Solutions to the stochastic linear-quadratic problem with forward-looking variables under commitment and discretion, now with the practical recursive saddlepoint method of Marcet and Marimon, and compact definitions of instrument rules and targeting rules.

“Monetary Policy and Learning,” Federal Reserve Bank of Atlanta Economic Review, Third Quarter 2003, 11-16, PDF (109 KB).

“Liquidity Traps, Policy Rules for Inflation Targeting, and Eurosystem Monetary-Policy Strategy,” research summary,  NBER Reporter, Winter 2002/2003PDF (119 KB). Previous research summary for NBER Reporter, Winter 97/98.

“Implementing Optimal Policy through Inflation-Forecast Targeting,” (with Michael Woodford, Columbia University), in Bernanke, Ben S., and Michael Woodford, eds., The Inflation-Targeting Debate, University of Chicago Press, 19-83, PDFAbstract.

“What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules,” Version 3.1, January 2003, Journal of Economic Literature 41 (2003) 426-477, PDF (619 KB). Abstract.
“Targeting Rules vs. Instrument Rules for Monetary Policy: What Is Wrong with McCallum and Nelson?” Federal Reserve Bank of St. Louis Review 87 (2005) 613-626, PDFAbstract.

The line: A response to McCallum and Nelson’s (2005) paper “Targeting Rules vs. Instrument Rules for Monetary Policy,” which criticizes my JEL 2003 article “What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules.”

A speech by Ben Bernanke, “The Logic of Monetary Policy,” Federal Reserve Board, December 2004, discusses these issue (forecast targeting/targeting rules are called “forecast-based policies” and simple instrument rules are called “simple feedback policies”).

“Monetary Policy and Real Stabilization,” September 2002, in Rethinking Stabilization Policy, A Symposium Sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 29-31, 2002, 261-312, PDFAbstract.

“The Inflation Forecast and the Loss Function,” in Paul Mizen, ed. (2003), Central Banking, Monetary Theory and Practice: Essays in Honour of Charles Goodhart, Volume I, Edward Elgar, 135-152. PDF (180 KB). Abstract.

“Inflation Targeting: Should It Be Modeled as an Instrument Rule or a Targeting Rule?” European Economic Review 46 (2002) 771-780, PDF (135KB). Abstract.
“Requiem for Forecast-Based Instrument Rules,” April 2001, PDF (149 KB). Abstract.

“How Should Monetary Policy Be Conducted in an Era of Price Stability?” in New Challenges for Monetary Policy, a symposium sponsored by the Federal Reserve Bank of Kansas City, held at Jackson Hole, Wyoming, August 26-28, 1999 (IIES Seminar Paper No. 680, CEPR Discussion Paper No. 2342, NBER Working Paper No. 7516), PDF (0.4 MB). Abstract.

“Policy Rules for Inflation Targeting” (with Glenn Rudebusch, Federal Reserve Bank of San Francisco), in John B. Taylor (ed.), Monetary Policy Rules, University of Chicago Press, 1999. IIES Seminar Paper No. 637, March 1998, (NBER Working Paper No. 6512),PDF (0.4 MB). Abstract.

“Inflation Targeting as a Monetary Policy Rule,” Journal of Monetary Economics 43 (1999) 607-654.

  • Working Paper version, presented at the Sveriges Riksbank-IIES Conference on Monetary Policy Rules, Stockholm, June 12-13, 1998. IIES Seminar Paper No. 646, August 1998 (CEPR Discussion Paper No. 1998, NBER Working Paper No. 6790), PDF (0.4 MB). Abstract.
  • Revised and shortened Journal version, December 1998, PDF (0.4 MB). Abstract
  • Corrections.

“Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets,” European Economic Review 41 (1997) 1111-1146,  PDF (320 KB). Abstract.

“Optimal Inflation Targets, ‘Conservative’ Central banks, and Linear Inflation Contracts,” American Economic Review 87 (1997) 98-114. Abstract.