Work

Speed Limit Policies: The Output Gap and Optimal Monetary Policy

Year: 2003

Type: article

Abstract: In a standard New Keynesian model, a myopic central bank concerned with stabilizing inflation and changes in the output gap will implement a policy under discretion that replicates the optimal, timeless perspective, precommitment policy. By stabilizing output gap changes, the central bank imparts inertia into output and inflation that is absent under pure discretion. Even a fully optimizing (i.e., non-myopic) central bank operating in a discretionary policy environment achieves better social outcomes if it focuses on inflation and changes in the output gap than are achieved under inflation targeting.

Source: American Economic Review

DOI: 10.1257/000282803321455278

Author: Carl E Walsh

Institution: University of California, Santa Cruz

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3121399440

FWCI: 45.39

Cites: 42

Cited by: 318

Related to: 10