Are there gains from including monetary aggregates and stock market indices in the monetary policy reaction function? A simulation study of recent U.S. monetary policy

MPRA Paper from University Library of Munich, Germany

Abstract: We study how the inclusion of growth rates of monetary aggregates or changes in stock market indices affects the stabilization performance of optimal monetary policy rules when there is uncertainty about the structure of the economy. With a simulation model of the U.S. economy we show that the performance of monetary policy rules that include these variables deteriorates much stronger than that of rules without them if the true economic structure deviates from the one used to derive the rule. We also investigate whether money growth and changes in stock market indices help explaining the Fed's recent monetary policy.

Keywords: optimal monetary policy; monetary policy reaction function; robust monetary policy (search for similar items in EconPapers)
JEL-codes: C15 E47 E52 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:2318

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