Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty

By Glenn D. Rudebusch. Social Science Research Network, 2000

504 citations recorded by the source corpus.

Nominal income rules for monetary policy have long been debated, but two issues are of particular recent interest. First, there are questions about the performance of such rules over a range of plausible empirical models---especially models with and without rational inflation expectations. Second, there are questions about the performance of these rules in real time using the type of data that is actually available contemporaneously to policymakers rather than final revised data. This paper determines optimal monetary policy rules in the presence of such model uncertainty and real-time data uncertainty and finds only a limited role for nominal output growth.

Subfields: Economics and Econometrics

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Citations in the corpus

On signal extraction and non-certainty-equivalence in optimal monetary policy rules (2000, unknown): “Thus, it is likely that the \noise" found by Rudebusch (1999a) re ects nothing other than de nitional changes in the data rather than deviations from rationality in policymakers' estimates.16 16The problem of de nitional revisions to output and in ation does raise an interesting theoretical…”
The Limits of Transparency (2011, unknown): “22A recent formulation of those results in linear economies with forward looking variables appears in Svensson and Woodford (2003). Certainty equivalence means that the optimal policy can be characterized by utilizing an efficient estimate of the state of the economy as if it was known with certaint”
Speed Limit Policies: The Output Gap and Optimal Monetary Policy (2003, background): “Rudebusch (2000) reached similar conclusions in his analysis of nominal income targeting, Þnding that it performed poorly for high values of φ.”
Term structure evidence on interest rate smoothing and monetary policy inertia (2002, methodology): “12For explicit derivations and discussion, see Woodford (1996), Goodfriend and King (1997), Walsh (1998), Clarida, Gali, and Gertler (1999), Svensson (1999a, b), McCallum and Nelson (1999), and Rudebusch (2002).”
Monetary policy in the UK (2007, background): “Although the empirical work on Taylor rules appears to be robust (Levin et al., 1999; Taylor, 1999; Rudebusch, 2002 ) it, nonetheless, entails a number of problems.”
Estimating the Euler Equation for Output (2002, background): “5 Such expectational timing lags have been common in New Keynesian inflation equations (see Rudebusch 2002 and Mankiw and Reis 2001).”
An area-wide model for the euro area (2005, methodology): “17 In case expectations would represent a 1-year ahead forecast, the calibration used would be consistent with empirical estimates for the US, as documented, e.g., in Rudebusch (2002) where forward-looking price-price Phillips curves are estimated.”