Luận Văn Essays on the design of monetary policy with incomplete information by Tetlow, Robert John (2000)

Essays on the design of monetary policy with incomplete information



This thesis examines the implications of information limitations for the conduct and design of monetary policy. In each of the thesis's three chapters other than the introductory essay in chapter 1, one aspect of the assumption of full symmetric information is relaxed. Chapter 2 drops the assumption that private agents know the policy rule and requires them instead to learn the rule that is in place. A small-scale model is estimated and subjected to stochastic simulations, with agents following a strategy of (discounted) least-squares learning. We find that the costs of learning a new rule can, under some circumstances, be substantial. A 'conservative' policymaker must incur substantial costs when he changes the rule in use, but is nearly always willing to bear the costs of shifting to a (constrained) optimal rule. A 'liberal' policymaker on the other hand, may actually benefit from agents' prior belief that a conservative rule is in place. Chapter 3 drops the assumption that the target of monetary policy is known with certainty by private agents. Instead, the target rate of inflation fluctuates randomly, but within bounds, with the drift in the target representing the predisposition of monetary authorities not to respond to shocks until the case for doing so is compelling. We find that reducing the randomness in inflation targeting does improve economic performance, but only within limits: it does not pay to eliminate random movements in the inflation target. Chapter 4 estimates a small forward-looking model using the Kalman filter with maximum likelihood techniques to extract a measure of potential output and its uncertainty as hyperparameters of the system. With these estimates, the implications of mismeasurement of potential output for the parameterization of a simple optimal policy rule is investigated. We find substantial uncertainty in the measurement of the gap. The implication for the parameterization of simple rules is policy attenuation: that is, a smaller weight on the output gap in the policy rule than under certainty equivalence.
[TABLE="class: citation"]
[TR]
[TH]Format:[/TH]
[TD]Dissertation[/TD]
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[TR]
[TH]Author(s):[/TH]
[TD]Tetlow, Robert John[/TD]
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[TR]
[TH]Published:[/TH]
[TD]2000[/TD]
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[TR]
[TH]Language:[/TH]
[TD]English[/TD]
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[/TABLE]