Simple interest rate rules with a role for money

Arbeitspapier

The paper analyses the performance of simple interest rate rules which feature a response to noisy observations of inflation, output and money growth. The analysis is based on a small empirical model of the hybrid New Keynesian type which has been estimated on euro area data by Stracca (2007). To assess the magnitude of the measurement problems regarding the feedback variables, we draw upon the real-time data set for Germany compiled by Gerberding et al. (2004). We find that interest rate rules which include a response to money growth outperform both Taylor-type rules and speed limit policies once real-time output gap uncertainty is accounted for. One reason is that targeting money growth introduces history dependence into the policy rule which is desirable when private agents are forward-looking. The second reason is that money growth contains information on the "true" growth rate of output which can only be measured imperfectly.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 1 ; No. 2007,31

Classification and Topics

• Classification: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Central Banks and Their Policies ; Monetary Policy
• Subject: Monetary policy rules ; euro area ; data uncertainty ; Zinspolitik ; Regelgebundene Politik ; Reaktionsfunktion ; Geldmengensteuerung ; Ungleichgewichtstheorie ; Theorie ; EU-Staaten ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Scharnagl, Michael ; Gerberding, Christina ; Seitz, Franz
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/19708
• Last update: 10.03.20252025, 11:14 AM CET