A comparison of some basic monetary policy regimes for open economies: implications of different degrees of instrument adjustment and wage persistence

Dale Henderson, Warwick McKibbin

    Research output: Chapter in Book/Report/Conference proceedingChapter

    Abstract

    Monetary policy regime combinations are compared for symmetric and asymmetric temporary shocks to money demand, goods demand, and productivity. In every region, the interest-rate instrument is either kept constant or changed to eliminate (full instrument adjustment) or reduce (partial instrument adjustment) the gap between actual and desired values for an intermediate target: the money supply, nominal income, or output plus inflation. Nominal wage persistence may be absent (Contract hypothesis) or present (Phillips hypothesis and Taylor hypothesis). There are analytical and simulation results from a two-region workhorse model and simulation results from the McKibbin-Sachs Global model. The ranking of regime combinations depends not only on the ultimate target and the source of shocks but also on the degrees of instrument adjustment and wage persistence.
    Original languageEnglish
    Title of host publicationModern Monetary Policy and Central Bank Governance
    Editors Sylvester Eijffinger & Donato Masciandaro
    Place of PublicationUnited Kingdom
    PublisherEdward Elgar Publishing Ltd.
    Pages215-317
    Edition1st
    ISBN (Print)9781783472970
    DOIs
    Publication statusPublished - 2014

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