Taylor rules in a limited participation model

L. J. Christiano; C. J. Gust

doi:10.1023/A:1003850310064

Taylor rules in a limited participation model

L. J. Christiano, C. J. Gust

Economics

Research output: Contribution to journal › Article › peer-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 language	English (US)
Pages (from-to)	437-460
Number of pages	24
Journal	Economist
Volume	147
Issue number	4
DOIs	https://doi.org/10.1023/A:1003850310064
State	Published - 1999

Keywords

Monetary policy
Non-neutrality of money
Taylor rule

ASJC Scopus subject areas

Economics and Econometrics

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10.1023/A:1003850310064

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title = "Taylor rules in a limited participation model",

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.",

keywords = "Monetary policy, Non-neutrality of money, Taylor rule",

author = "Christiano, {L. J.} and Gust, {C. J.}",

note = "Funding Information: * We are grateful for the perceptive comments of an anonymous referee. Portions of this document are reprinted, with the permission of the University of Chicago Press, from a comment by us in Taylor (1999a). The first author is grateful to the National Science Foundation for a grant to the National Bureau of Economic Research. The contents of this paper do not reflect the views of the Federal Reserve Board. ** Department of Economics, Northwestern University, and Federal Reserve Board, respectively. Copyright: Copyright 2004 Elsevier Science B.V., Amsterdam. All rights reserved.",

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AU - Christiano, L. J.

AU - Gust, C. J.

N1 - Funding Information: * We are grateful for the perceptive comments of an anonymous referee. Portions of this document are reprinted, with the permission of the University of Chicago Press, from a comment by us in Taylor (1999a). The first author is grateful to the National Science Foundation for a grant to the National Bureau of Economic Research. The contents of this paper do not reflect the views of the Federal Reserve Board. ** Department of Economics, Northwestern University, and Federal Reserve Board, respectively. Copyright: Copyright 2004 Elsevier Science B.V., Amsterdam. All rights reserved.

PY - 1999

Y1 - 1999

N2 - 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.

AB - 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.

KW - Monetary policy

KW - Non-neutrality of money

KW - Taylor rule

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JO - Economist

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Taylor rules in a limited participation model

Abstract

Keywords

ASJC Scopus subject areas

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