UID:
edoccha_9958069679802883
Format:
1 online resource (53 p.)
ISBN:
1-4639-6919-8
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1-4639-9224-6
Series Statement:
IMF Working Papers
Content:
The natural interest rate is of great relevance to central banks, but it is difficult to measure. We show that in a standard microfounded monetary model, the natural interest rate co-moves with a transformation of the money demand that can be computed from actual data. The co-movement is of a considerable magnitude and independent of monetary policy. An optimizing central bank that does not observe the natural interest rate can take advantage of this co-movement by incorporating the transformed money demand, in addition to the observed output gap and inflation, into a simple but optimal interest rate rule. Combining the transformed money demand and the observed output gap provides the best information about the natural interest rate.
Note:
Description based upon print version of record.
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Cover; Contents; I. Introduction; II. Basic model; A. The household and the MIU specification of money demand; B. The money demand and the natural interest rate; C. Linearized model; III. Money demand as an indicator of the natural interest rate; Figures; 1. Contemporaneous correlation between money gap and natural interest rate; IV. Monetary policy; A. Optimal policy coefficients and their interpretation; B. Extensions of the basic model; 1. Serially correlated shocks; 2. Interest rate stabilization; 3. Productivity shocks; 4. Discount factor shocks
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2. Optimal policy coefficients with discount factor shockV. A calibrated quantitative model; A. Quantitative model; B. Dynamic money demand function and the money gap; C. Calibration; VI. Quantitative results; A. Correlation between the money gap and the natural interest rate; 3. Dynamic correlation between money gap and natural interest rate for euro area; B. Optimal simple policy rules with money demand; C. Quantifying the optimal policy coefficients; Tables; 1. Optimal policy coefficients (annualized) for euro area calibration; D. The quantitative role of money demand in the U.S
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4. Optimal policy coefficient of money gap5. Dynamic correlation between money gap and natural interest rate for U.S; E. Robustness checks; 2. Optimal policy coefficients (annualized) for U.S. calibration; VII. Conclusion; References; Appendices; A. Basic model and quantitative model; Description of quantitative model; Quantitative model equations; Central bank loss function; Basic model as special case of quantitative model; B. Equilibrium and policy coefficients in the basic model; Solving the rational expectation equilibrium; Solving for policy coefficients; Modeling discount factor shocks
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C. The money gap with a dynamic money demand functionD. Calibration
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English
Additional Edition:
ISBN 1-4639-4436-5
Additional Edition:
ISBN 1-4639-3055-0
Language:
English
