Estimates of the Effectiveness of Monetary Policy
CFDP Revision Date
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.
Fair, Ray C., "Estimates of the Effectiveness of Monetary Policy" (2001). Cowles Foundation Discussion Papers. 1552.