search query: @indexterm ECONOMICS / total: 4580
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| Author: | Walsh, C.E. |
| Title: | Speed Limit Policies: The Output Gap and Optimal Monetary Policy |
| Journal: | American Economic Review
2003 : MAR, VOL. 93:1, p. 265-278 |
| Index terms: | POLICY MONETARY POLICY ECONOMICS ANALYTICAL REVIEW |
| Language: | eng |
| Abstract: | In this paper, the author has assumed that the relevant monetary policy regime is one of discretion, and the problem faced in designing policy is to, assign a loss function to the central bank. Virtually all the recent literature has assumed that social loss function dependent on inflation and the output gap is the appropriate objective of policy, yet discretionary policy with such a social loss function imparts too little persistence output and inflation. A policy aimed at stabilizing inflation and the change in the output gap (a speed limit policy) imparts inertia that can le to improved stabilization relative to pure discretion or inflation targeting. Simulations suggested that a speed limit targeting policy dominates inflation targeting except when forward- looking expectations are relatively important. |
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