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Monetary policy over time

V Gaspar, Frank Smets (UGent) and D Vestin
(2006) MACROECONOMIC DYNAMICS. 10(2). p.207-229
Author
Organization
Abstract
Progress in stochastic macroeconomic modeling justifies revisiting Milton Friedman's program on the relation between macroeconomic stability and active stabilization policies. In the lecture, we use a standard new Keynesian model but depart from rational expectations by assuming that agents behave in line with adaptive teaming, which increase the potential for instability in the economy. Optimal policy under adaptive learning displays some similarity with optimal policy under commitment in the rational expectations setting. Specifically, we find that optimal policy responds in a persistent manner when expectations threaten to become unhinged. Finally, we illustrate the dynamics associated with the change from a simple regime that ignores the expectation formation. to the optimal policy that does. The results are not unlike the behavior of the U.S. economy around the Volcker transition (October 1979).
Keywords
MODEL, RULES, INFLATION

Citation

Please use this url to cite or link to this publication:

MLA
Gaspar, V., et al. “Monetary Policy over Time.” MACROECONOMIC DYNAMICS, vol. 10, no. 2, 2006, pp. 207–29, doi:10.1017/S1365100505050121.
APA
Gaspar, V., Smets, F., & Vestin, D. (2006). Monetary policy over time. MACROECONOMIC DYNAMICS, 10(2), 207–229. https://doi.org/10.1017/S1365100505050121
Chicago author-date
Gaspar, V, Frank Smets, and D Vestin. 2006. “Monetary Policy over Time.” MACROECONOMIC DYNAMICS 10 (2): 207–29. https://doi.org/10.1017/S1365100505050121.
Chicago author-date (all authors)
Gaspar, V, Frank Smets, and D Vestin. 2006. “Monetary Policy over Time.” MACROECONOMIC DYNAMICS 10 (2): 207–229. doi:10.1017/S1365100505050121.
Vancouver
1.
Gaspar V, Smets F, Vestin D. Monetary policy over time. MACROECONOMIC DYNAMICS. 2006;10(2):207–29.
IEEE
[1]
V. Gaspar, F. Smets, and D. Vestin, “Monetary policy over time,” MACROECONOMIC DYNAMICS, vol. 10, no. 2, pp. 207–229, 2006.
@article{4424478,
  abstract     = {{Progress in stochastic macroeconomic modeling justifies revisiting Milton Friedman's program on the relation between macroeconomic stability and active stabilization policies. In the lecture, we use a standard new Keynesian model but depart from rational expectations by assuming that agents behave in line with adaptive teaming, which increase the potential for instability in the economy. Optimal policy under adaptive learning displays some similarity with optimal policy under commitment in the rational expectations setting. Specifically, we find that optimal policy responds in a persistent manner when expectations threaten to become unhinged. Finally, we illustrate the dynamics associated with the change from a simple regime that ignores the expectation formation. to the optimal policy that does. The results are not unlike the behavior of the U.S. economy around the Volcker transition (October 1979).}},
  author       = {{Gaspar, V and Smets, Frank and Vestin, D}},
  issn         = {{1365-1005}},
  journal      = {{MACROECONOMIC DYNAMICS}},
  keywords     = {{MODEL,RULES,INFLATION}},
  language     = {{eng}},
  number       = {{2}},
  pages        = {{207--229}},
  title        = {{Monetary policy over time}},
  url          = {{http://doi.org/10.1017/S1365100505050121}},
  volume       = {{10}},
  year         = {{2006}},
}
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