Taylor rules in a limited participation model

L. J. Christiano, C. J. Gust

Research output: Contribution to journalArticlepeer-review

12 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)437-460
Number of pages24
JournalEconomist
Volume147
Issue number4
DOIs
StatePublished - Dec 1 1999

Keywords

  • Monetary policy
  • Non-neutrality of money
  • Taylor rule

ASJC Scopus subject areas

  • Economics and Econometrics

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