Rule-of-thumb behaviour and monetary policy

By J. Amato, Thomas Laubach. 2001

183 citations recorded by the source corpus.

Abstract We investigate the implications of rule-of-thumb behaviour by consumers or price setters for optimal monetary policy and simple interest rate rules. This behaviour leads to endogenous persistence in output and inflation and alters the policymaker's welfare objective. Our main finding is that highly inertial policy is optimal regardless of what fraction of agents occasionally follow a rule of thumb. We also find that a first-difference version of Taylor's (Carnegie–Rochester Conf. Ser. Public Policy 39 (1993) 195–214) rule generally has desirable properties. By contrast, the coefficients in other optimised simple rules tend to be extremely sensitive with respect to the fraction of rule-of-thumb behaviour.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/5bfb8a3262316b38992181c1a45b27a19426325f

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

Citations in the corpus

A Microfounded Sectoral Model for Open Economies (2007, methodology): “in Amato and Laubach (2003 and 2004), we propose a completely microfounded aggregate demand equation, based on the hypothesis of habit formation. Recent micro-level studies report mixed evidence of the impact of habit formation in consumption (see Ravina (2005)), while studies conducted with aggrega”
Openness, Imperfect Exchange Rate Pass-Through and Monetary Policy (2002, unknown): “Finally, we relate the variability of prices to the variance of inflation and the change in inflation as in Woodford (1999), Steinson (2001) and Amato and Laubach (2000).”
Inflation Persistence and Optimal Monetary Policy in the Euro Area (2002, background): “Amato, Jeffrey, and Thomas Laubach (2003).”