TY  - JOUR
AU  - Mishkin,Frederic S.
TI  - The Role of Output Stabilization in the Conduct of Monetary Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9291
PY  - 2002
Y2  - October 2002
UR  - http://www.nber.org/papers/w9291
L1  - http://www.nber.org/papers/w9291.pdf
N1  - Author contact info:
Frederic S. Mishkin
Columbia University
Graduate School of Business
Uris Hall 817
3022 Broadway
New York, NY 10027
Tel: 212-854-3488
Fax: 212/662-8474
E-Mail: fsm3@columbia.edu
AB  - This paper examines the role of output stabilization in the conduct of monetary policy.  It argues that activist monetary policy in which the monetary authorities focus on output fluctuations in the setting of their policy instrument and in policy statements is likely to produce worse outcomes for output and inflation fluctuations, both because it will lead to suboptimal monetary policy, but also because it complicates monetary authorities' communication strategy and can weaken the credibility of the central bank.  In contrast, conducting monetary policy with a flexible inflation target rule is likely to produce better outcomes.  A flexible inflation target rule also allows the monetary authorities to effectively communicate to the public that they do care about output fluctuations, but makes it less likely that they will be encouraged to try to exploit the short-run tradeoff between output and inflation.
ER  -