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American Economic Journal: Macroeconomics: Vol. 1 No. 2 (July 2009)

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Optimal Monetary Policy Rules in an Estimated Sticky-Information Model

Article Citation

Reis, Ricardo. 2009. "Optimal Monetary Policy Rules in an Estimated Sticky-Information Model." American Economic Journal: Macroeconomics, 1(2): 1-28.

DOI: 10.1257/mac.1.2.1

Abstract

This paper uses a dynamic stochastic general equilibrium (DSGE) model with sticky information as a laboratory to study monetary policy. It characterizes the model's predictions for macro dynamics and optimal policy at prior parameters, and then uses data on five US macroeconomic series to update the parameters and provide an estimated model that can be used for policy analysis. The model answers a few policy questions. How does sticky information affect optimal monetary policy? What is the optimal interest rate rule? What is the optimal elastic price-level targeting rule? How does parameter uncertainty affect optimal policy? Are the conclusions for the Euro area different? (JEL E13, E31, E43, E52)

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Authors

Reis, Ricardo (Columbia U)

JEL Classifications

E13: General Aggregative Models: Neoclassical
E31: Price Level; Inflation; Deflation
E43: Determination of Interest Rates; Term Structure of Interest Rates
E52: Monetary Policy

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