Working Paper
Should optimal discretionary monetary policy look at money?
Abstract: This paper examines whether monetary indicators are useful in implementing optimal discretionary monetary policy when the policy maker has incomplete information about the environment. We find that money does not contain useful information for the policy maker, if we calibrate the model to the U.S. economy. If money demand were to be appreciably less variable, observations on money could be useful in response to productivity shocks but would be harmful in response to money demand shocks. We provide an incomplete information example where equilibrium welfare declines when the money demand volatility decreases.
Keywords: Monetary policy; Banks and banking, Central;
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Bibliographic Information
Provider: Federal Reserve Bank of Richmond
Part of Series: Working Paper
Publication Date: 2002
Number: 02-04