NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Christian Jensen

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Working Papers

April 2002The Non-Optimality of Proposed Monetary Policy Rules Under Timeless-Perspective Commitment
with Bennett C. McCallum: w8882
Several recent papers have usefully emphasized the inefficiency that arises from discretionary monetary policymaking, relative to optimal policy from a 'timeless perspective,' in macroeconomic models with forward-looking private behavior. The inefficiency in question is in terms of average outcomes of the conditional expectation of a policy objective that reflects the discounted present value of current and future period losses (which involve squared deviations of inflation and output from specified target levels). In the literature, most of the analysis has been conducted in an optimizing model that features a Calvo-Rotemberg price adjustment equation that includes a 'cost-push' shock term. This literature suggests that policy, which keeps inflation equal to a negative multiple of the c...

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