Taylor Rules in a Limited Participation Model

A limited participation model of money is used as a laboratory for studying the operating characteristics of Taylor rules for setting the rates of interest. Rules are evaluated according to their ability to protect the economy from bad outcomes such as the burst of inflation observed in the 1970s. B...

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Bibliographic Details
Published inDe Economist (Netherlands) Vol. 147; no. 4; pp. 437 - 460
Main Authors Christiano, Lawrence J., Gust, Christopher J.
Format Journal Article
LanguageEnglish
Published New York Springer Nature B.V 01.12.1999
Subjects
Aggressiveness
Central banks
Economic models
Economic theory
Federal Reserve monetary policy
Financial economics
Inflation
Inflation rate
Interest rates
Laboratories
Monetary policy
Neutrality
Output rate
Studies
Unemployment
United States > US
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ISSN0013-063X
1572-9982
DOI10.1023/A:1003850310064

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Summary:A limited participation model of money is used as a laboratory for studying the operating characteristics of Taylor rules for setting the rates of interest. Rules are evaluated according to their ability to protect the economy from bad outcomes such as the burst of inflation observed in the 1970s. Based on the analysis, an argument is made for a rule which raises the nominal interest rates more than one-for-one with a rise in inflation; and does not change the interest-rate in response to a change in output relative to trend.
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ISSN:0013-063X
1572-9982
DOI:10.1023/A:1003850310064