Simple Monetary Policymaking Without the Output Gap
Working paper
Published version
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http://hdl.handle.net/11250/2498658Utgivelsesdato
2002Metadata
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Sammendrag
The performance of a simple monetary policy rule, which does not rely on explicit information about the output gap but instead uses the change in the rate of inflation as a proxy for the output gap, is explored in a simple model of the US economy. The rule is found to outperform an optimised Taylor rule under a reasonable specification of real-time output-gap uncertainty. The relative performance improves if the inflation process is more backward-looking, if demand or cost-push shocks are less prevalent, and if the output gap has a stronger effect on inflation.