Title: Monetary policy in the presence of a stochastic deficit
Description: "This paper presents a welfare analysis of monetary policy rules that differ as regards the extent to which monetary policy accommodates an exogenous, stochastic deficit.  Examples show that a nonaccommodating rule, one involving a higher ratio of bonds to currency the higher the deficit, is not necessarily better than rules that accommodate: either a rule involving a constant ratio of bonds to currency or one involving a lower ratio of bonds to currency the higher the deficit.  Moreover, the nonaccommodating rule can imply more variation in the price level than the accommodating rules"--Federal Reserve Bank of Minneapolis web site.
Subjects: Monetary policy, Mathematical models, Stochastic analysis