Speed Limit Policies: The Output Gap and Optimal Monetary Policy

By Carl E. Walsh. Social Science Research Network, 2003

358 citations recorded by the source corpus.

In a standard New Keynesian model, a myopic central bank concerned with stabilizing inflation and changes in the output gap will implement a policy under discretion that replicates the optimal, timeless perspective, precommitment policy. By stabilizing output gap changes, the central bank imparts inertia into output and inflation that is absent under pure discretion. Even a fully optimizing (i.e., non-myopic) central bank operating in a discretionary policy environment achieves better social outcomes if it focuses on inflation and changes in the output gap than are achieved under inflation targeting.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/fbfca506e5182d077bc4220e716f717d483bcac7

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Citations in the corpus

The New Keynesian Phillips Curve: From Sticky Inflation to Sticky Prices (2008, background): “Consequently, recent literature, including Rudebusch (2002) and Walsh (2003a), emphasizes the importance of empirical evidence on the forward- and backward-looking components in the NKPC.”
The External Finance Premium and the Macroeconomy: Us Post-Wwii Evidence (2008, neutral): “The terms involving rst di¤erences can be seen as the allowance for speed limit policies , as in Walsh (2003).”
Opting Out of the Great Inflation: German Monetary Policy after the Break Down of Bretton Woods (2009, neutral): “31 See Clarida et al.(1999), p. 1692, FN 74, or Walsh (2003).”
The Price Puzzle Revisited: Can the Cost Channel Explain a Rise in Inflation after a Monetary Policy Shock? (2009, result): “This finding is in line with Smets and Wouters (2003) and theoretical suggestions of Walsh (2003).”
Historical monetary policy analysis and the Taylor rule (2003, background): “…(1991), Levin et al (1999), Rotemberg and Woodford (1999), Sack and Wieland (2000), Williams (1999) and Woodford (1999) for the role of interest smoothing and Leitemo and Lonning (2001), McCallum (2001), Orphanides et al (2000), Woodford (2002), and Walsh (2003) for the role of output growth.”
Labor Market Search and Monetary Shocks (2002, background): “ qt = AB ¡ eH,aEt at+1 − Et μt+1 − Et rt+1 +Etzt+1 ¢ + · (1− ηkw)βφ(q −A) q ̧ Et φt+1 − μ q + h q ¶ ( rt −Et πt+1)− μ ηkw 1− ηkw ¶μ q + h q ¶ k t + (1− ηk)βφEt qt+1 (45)”