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Optimal Monetary Policy

Published online by Cambridge University Press:  26 March 2020

Andrew P. Blake ,
Martin Weale  and
Garry Young
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Abstract

In this article we propose a policy framework for inflation targeting that contains elements of both optimal and simple rules. We use a simple feedback rule for the interest rate to look after monetary policy in the long run whilst using optimal control in the short run to determine appropriate responses to shocks. The composite policy is capable of substantial welfare improvements over using a simple rule alone whilst maintaining tractability. We see the use of such a framework together with a fully specified model as a feasible approach to practical policy design.

Type
Articles
Information
National Institute Economic Review , Volume 164 , April 1998 , pp. 100 - 109
Copyright
Copyright © 1998 National Institute of Economic and Social Research

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Footnotes

A previous version of this paper was presented at an ESRC conference on Macroeconomic Modelling and Economic Policy, London 8-9 January 1998. The research it describes has been supported by the ESRC.

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