Targeting vs. instrument rules for monetary policy
By: Bennett T. McCallum, Edward Nelson.
Contributors: Nelson, Edward, 1971-; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10612; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10612.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Monetary policy.
Description: "Svensson (JEL, 2003) argues strongly that specific targeting rules first order optimality conditions for a specific objective function and model are normatively superior to instrument rules for the conduct of monetary policy.  That argument is based largely upon four main objections to the latter plus a claim concerning the relative interest-instrument variability entailed by the two approaches.  The present paper considers the four objections in turn, and advances arguments that contradict all of them.  Then in the paper's analytical sections, it is demonstrated that the variability claim is incorrect, for a neo-canonical model and also for a variant with one-period-ahead plans used by Svensson, providing that the same decision-making errors are relevant under the two alternative approaches.  Arguments relating to general targeting rules and actual central bank practice are also included"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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