Working Paper: NBER ID: w8539
Authors: Lawrence J. Christiano; Massimo Rostagno
Abstract: Using a series of examples, we review the various ways in which a monetary policy characterized by the Taylor rule can inject volatility into the economy. In the examples, a particular modification to the Taylor rule can reduce or even entirely eliminate the problems. Under the modified policy, the central bank monitors the money growth rate and commits to abandoning the Taylor rule in favor of a money growth rule in case money growth passes outside a particular monitoring range.
Keywords: No keywords provided
JEL Codes: E52; E31; E63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Taylor rule (E43) | economic volatility (E32) |
| modified Taylor rule (E52) | economic volatility (E32) |
| money growth monitoring (O42) | economic volatility (E32) |
| modified Taylor rule (E52) | money growth monitoring (O42) |