Sophisticated monetary policies

Andrew Atkeson, Varadarajan V. Chari, Patrick J. Kehoe

Research output: Contribution to journalArticlepeer-review

27 Scopus citations

Abstract

In standard monetary policy approaches, interest-rate rules often produce indeterminacy. A sophisticated policy approach does not. Sophisticated policies depend on the history of private actions, government policies, and exogenous events and can differ on and off the equilibrium path. They can uniquely implement any desired competitive equilibrium. When interest rates are used along the equilibrium path, implementation requires regime-switching. These results are robust to imperfect information. Our results imply that the Taylor principle is neither necessary nor sufficient for unique implementation. They also provide a direction for empirical work on monetary policy rules and determinacy.

Original languageEnglish (US)
Pages (from-to)47-89
Number of pages43
JournalQuarterly Journal of Economics
Volume125
Issue number1
DOIs
StatePublished - Feb 2010

Bibliographical note

Funding Information:
∗The authors thank the National Science Foundation for financial support and Kathleen Rolfe and Joan Gieseke for excellent editorial assistance. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

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