TY  - JOUR
AU  - Rotemberg,Julio J.
AU  - Woodford,Michael
TI  - Interest-Rate Rules in an Estimated Sticky Price Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6618
PY  - 1998
Y2  - June 1998
UR  - http://www.nber.org/papers/w6618
L1  - http://www.nber.org/papers/w6618.pdf
N1  - Author contact info:
Julio J. Rotemberg
Graduate School of Business
Harvard University, Morgan Hall
Soldiers Field
Boston, MA  02163
Tel: 617/495-1015
Fax: 617/496-5994
E-Mail: jrotemberg@hbs.edu

Michael Woodford
Department of Economics
Columbia University
420 W. 118th Street
New York, NY 10027
Tel: 212/854-1094
Fax: 212-854-8059
E-Mail: mw2230@columbia.edu
M1  - published as Julio J. Rotemberg, Michael Woodford. "Interest Rate Rules in an Estimated Sticky Price Model," in John B. Taylor, editor, "Monetary Policy Rules" University of Chicago Press (1999)

AB  - This paper evaluates alternative rules by which the Fed may set interest rates using the small model of the U.S. economy estimated in Rotemberg and Woodford (1997).  Our main substantive finding is that low and stable inflation together with stable interest rates can be achieved by letting the funds rate respond positively to inflation while also responding, with a coefficient bigger than one, to the lagged funds rate itself.  A rule in which the interest rate is set in this extremely simple way does almost as well as a more complicated rule which is optimal in our setting, in the sense of maximizing expected utility to the representative household.  Furthermore, when the funds rate responds to inflation only with a delay, due to delay in the availability of inflation data, performance under the rule is only slightly reduced.
ER  -