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Optimal Monetary Policy
Andrew P. Blake, Martin Weale and Garry Young
National Institute Economic Review
No. 164 (April 1998), pp. 100-109
Published by: Sage Publications, Ltd.
Stable URL: http://www.jstor.org/stable/23872467
Page Count: 10
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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.
National Institute Economic Review © 1998 Sage Publications, Ltd.