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"Evaluating Alternative Monetary Policy Rules," (with E.P. Howrey), Journal of Monetary Economics, October 1996, 173-193.
pdf file (1,033KB).

Abstract

This paper examines monetary policy from an optimal control perspective. Five loss functions are minimized for each of five models, and the results are compared. The basic (`true') loss function targets inflation and unemployment. The other loss functions target, respectively, inflation alone, unemployment alone, nominal growth alone, and real growth alone. The five models are two small structural models, two VAR models, and a large structural model. A numerical procedure is presented that can handle a variety of loss functions and models.
Comments

This paper uses the optimal control framework to examine various monetary policy rules. The numerical procedure that is proposed handles a wide variety of loss functions and models. The solution technique for optimal control problems in 1974#1 is used for the results for the US model.