Please use this identifier to cite or link to this item:
https://hdl.handle.net/10316/11739
Title: | Taylor-type rules versus optimal policy in a Markov-switching economy | Authors: | Alexandre, Fernando Bação, Pedro Gabriel, Vasco |
Keywords: | Asset Prices; Monetary Policy; Markov Switching | Issue Date: | 2008 | Publisher: | FEUC. Grupo de Estudos Monetários e Financeiros | Citation: | Estudos do GEMF. 2 (2008) | Abstract: | We analyse the effect of uncertainty concerning the state and the nature of asset price movements on the optimal monetary policy response. Uncertainty is modeled by adding Markov-switching shocks to a DSGE model with capital accumulation. In our analysis we consider both Taylor-type rules and optimal policy. Taylor rules have been shown to provide a good description of US monetary policy. Deviations from its implied interest rates have been associated with risks of financial disruptions. Whereas interest rates in Taylor-type rules respond to a small subset of information, optimal policy considers all state variables and shocks. Our results suggest that, when a bubble bursts, the Taylor rule fails to achieve a soft landing, contrary to the optimal policy. | URI: | https://hdl.handle.net/10316/11739 | Rights: | openAccess |
Appears in Collections: | FEUC- Vários |
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Taylor-type rules versus optimal policy.pdf | 439.83 kB | Adobe PDF | View/Open |
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