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Monetary Rules:A Preliminary Analysis *

Monetary Rules:A Preliminary Analysis * This paper examines the effects of three simple rules for monetary policy in an econometric model of the Australian economy. Its main contribution is to examine such rules under a range of exogenous shocks to the economy. rather than over a particular historical episode. A second contribution is to show that, in the model used, the money supply may be controlled by variations in interest rates under official control. However. lags of two to four quarters are involved for the shocks considered in the paper. The results are consistent, in the short run, with those obtained by Poole—that is, it is sensible to fix the money supply when the shocks are ‘real’ and to fix the interest rate when the shocks are ‘financial’. In the medium to long run. however, it is shown that the variability of inflation and unemployment may be less when money is controlled even for a financial shock. These conclusions are strengthened if allowance is made for the ‘underwriting’ problem. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Economic Record Wiley

Monetary Rules:A Preliminary Analysis *

JONSON, P. D.; TREVOR, R. G.
The Economic Record , Volume 57 (2) – Jun 1, 1981
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References (5)

Publisher
Wiley
Copyright
Copyright © 1981 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0013-0249
eISSN
1475-4932
DOI
10.1111/j.1475-4932.1981.tb01047.x
Publisher site
See Article on Publisher Site

Abstract

This paper examines the effects of three simple rules for monetary policy in an econometric model of the Australian economy. Its main contribution is to examine such rules under a range of exogenous shocks to the economy. rather than over a particular historical episode. A second contribution is to show that, in the model used, the money supply may be controlled by variations in interest rates under official control. However. lags of two to four quarters are involved for the shocks considered in the paper. The results are consistent, in the short run, with those obtained by Poole—that is, it is sensible to fix the money supply when the shocks are ‘real’ and to fix the interest rate when the shocks are ‘financial’. In the medium to long run. however, it is shown that the variability of inflation and unemployment may be less when money is controlled even for a financial shock. These conclusions are strengthened if allowance is made for the ‘underwriting’ problem.

Journal

The Economic Record – Wiley

Published: Jun 1, 1981

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