Title

Estimates of the Effectiveness of Monetary Policy

Authors

Ray C. Fair

Document Type

Discussion Paper

Publication Date

4-1-2001

CFDP Number

1298

CFDP Revision Date

2003-06-01

CFDP 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.

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