CFDP 1298

Estimates of the Effectiveness of Monetary Policy

Author(s): 
Ray C. Fair

Publication Date: April 2001

Revision Date: June 2003

Pages: 29

Abstract: 

This paper examines various interest rate rules, as well as policies derived by solving optimal control problems, for their ability to dampen economic fluctuations caused by random shocks. A tax rate rule is also considered. A multicountry econometric model is used for the experiments. The results differ sharply from those obtained using recent models in which the coefficient on inflation in the nominal interest rate rule must be greater than one in order for the economy to be stable.

Keywords: 

Monetary policy, interest rate rules

JEL Classification Codes:  E52

See CFP: 1155