NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Effective Monetary Policy Strategies in New Keynesian Models: A Reexamination

Hess Chung, Edward Herbst, Michael T. Kiley

Chapter in NBER book NBER Macroeconomics Annual 2014, Volume 29 (2015), Jonathan A. Parker and Michael Woodford, editors (p. 289 - 344)
Conference held April 11-12, 2014
Published in July 2015 by University of Chicago Press
© 2015 by the National Bureau of Economic Research
in NBER Book Series NBER Macroeconomics Annual

We explore the importance of the nature of nominal price and wage adjustment for the design of effective monetary policy strategies, especially at the zero lower bound. Our analysis suggests that sticky-price and sticky-information models fit standard macroeconomic time series comparably well. However, the model with information rigidity responds differently to anticipated shocks and persistent zero-lower bound episodes--to a degree important for monetary policy and for understanding the effects of fundamental disturbances when monetary policy cannot adjust. These differences may be important for understanding other policy issues as well, such as fiscal multipliers. Despite these differences, many aspects of effective policy strategy are common across the two models: In particular, highly inertial interest rate rules that respond to nominal income or the price level perform well, even when hit by adverse supply shocks or large demand shocks that induce the zero-lower bound. Rules that respond to the level or change in the output gap can perform poorly under those conditions.

download in pdf format
   (1240 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.1086/680629

Commentary on this chapter:
  Comment, Lars E. O. Svensson
  Comment, Mark Gertler
  Discussion,
Users who downloaded this chapter also downloaded* these:
Hassan and Mertens Information Aggregation in a Dynamic Stochastic General Equilibrium Model
Barsky, Basu, and Lee Whither News Shocks?
Fernald Productivity and Potential Output before, during, and after the Great Recession
Foote and Ryan Labor-Market Polarization over the Business Cycle
Rogoff Costs and Benefits to Phasing out Paper Currency
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us