Hidden Bibliographic Details
| Other authors / contributors: | Espinoza, Raphael A., author.
Ghosh, Atish R., (IMF staff)
International Monetary Fund. Research Department, issuing body.
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| ISBN: | 1513573039
9781513573038
9781513573038
1513573233
9781513573236
1513575295
9781513575292
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| Notes: | "March 2016."
"Research Department."
Includes bibliographical references (pages 32-33).
Online resource; title from pdf title page (IMF.org Web site, viewed March 14, 2016).
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| Summary: | This paper analyzes the use of unconventional policy instruments in New Keynesian setups in which the 'divine coincidence' breaks down. The paper discusses the role of a second instrument and its coordination with conventional interest rate policy, and presents theoretical results on equilibrium determinacy, the inflation bias, the stabilization bias, and the optimal central banker's preferences when both instruments are available. We show that the use of an unconventional instrument can help reduce the zone of equilibrium indeterminacy and the volatility of the economy. However, in some circumstances, committing not to use the second instrument may be welfare improving (a result akin to Rogoff (1985a) example of counterproductive coordination). We further show that the optimal central banker should be both aggressive against inflation, and interventionist in using the unconventional policy instrument. As long as price setting depends on expectations about the future, there are gains from establishing credibility by using any instrument that affects these expectations.--Abstract.
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| Other form: | Print Version: Alla, Zineddine. Unconventional Policy Instruments in the New Keynesian Model. Washington, D.C. : International Monetary Fund, 2016 9781513573038
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| Standard no.: | 10.5089/9781513573038.001
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