TY - JOUR
AU - Turnovsky,Stephen J.
TI - Supply Shocks and Optimal Monetary Policy
JF - National Bureau of Economic Research Working Paper Series
VL - No. 1988
PY - 1986
Y2 - July 1986
DO - 10.3386/w1988
UR - http://www.nber.org/papers/w1988
L1 - http://www.nber.org/papers/w1988.pdf
N1 - Author contact info:
Stephen Turnovsky
Department of Economics
301 Savery Hall; Mail Stop DK 30
University of Washington
Seattle, WA 98195
Tel: 206-545-8028
E-Mail: sturn@u.washington.edu
AB - This paper demonstrates that if current shocks are observed instantaneously, output can be stabilized perfectly for completely general supply disturbances, using simple monetary rules based only on: (i) the current shock, (ii) the previous forecast of the current shock, (iii) the forecast for just one period ahead. The optimal rule can be expressed in an infinite number of ways and various alternatives are considered. With optimal wage indexation, the monetary rule is even simpler. If current shocks are not observed instantaneously, but are inferred from other signals, the optimal rules are of the same form, with the current perceived disturbance replacing the actual.
ER -