TY  - JOUR
AU  - Giannoni,Marc P.
AU  - Woodford,Michael
TI  - Optimal Interest-Rate Rules: I. General Theory
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9419
PY  - 2003
Y2  - January 2003
UR  - http://www.nber.org/papers/w9419
L1  - http://www.nber.org/papers/w9419.pdf
N1  - Author contact info:
Marc Giannoni
Federal Reserve Bank of New York
Macroeconomic & Monetary Studies Function
Research and Statistics Group
33 Liberty Street
New York, NY 10045-0001
Tel: 212-720-6518
Fax: 212-720-1844
E-Mail: mg2190@columbia.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
AB  - This paper proposes a general method for deriving an optimal monetary policy rule in the case of a dynamic linear rational-expectations model and a quadratic objective function for policy. A commitment to a rule of the type proposed results in a determinate equilibrium in which the responses to shocks are optimal. Furthermore, the optimality of the proposed policy rule is independent of the specification of the stochastic disturbances. Finally, the proposed rules can be justified from a timeless perspective,' so that commitment to such a rule need not imply time-inconsistent policy. We show that under fairly general condition, optimal policy can by represented by a generalized Taylor rule, in which however the relation between the interest-rate instrument and the other target variables is not purely contemporaneous, as in Taylor's specification.  We also offer general conditions under which optimal policy can be represented by a 'super-inertial' interest-rate rule, and under which it can be represented by a pure 'targeting rule' that makes no explicit reference to the path of the instrument.
ER  -