TY  - JOUR
AU  - Christiano,Lawrence J.
AU  - Gust,Christopher J.
TI  - Taylor Rules in a Limited Participation Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7017
PY  - 1999
Y2  - March 1999
UR  - http://www.nber.org/papers/w7017
L1  - http://www.nber.org/papers/w7017.pdf
N1  - Author contact info:
Lawrence Christiano
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-8231
Fax: 847/491-7001
E-Mail: l-christiano@northwestern.edu
AB  - We use the limited participation model of money as a laboratory for studying the operating characteristics of Taylor rules for setting the rate of interest.  Rules are evaluated according to their ability to protect the economy from bad outcomes such as the burst of inflation observed in the 1970s. Based on our analysis, we argue for a rule which: (i) raises the nominal interest rate more than one-for-one with a rise in inflation; and (ii) does not change the interest rate in response to a change in output relative to trend.
ER  -