## Interest and prices: foundations of a theory of monetary policy

Author: Woodford, Michael Publisher: Princeton University Press, 2003.Language: EnglishDescription: 785 p. : Graphs/Ill. ; 24 cm.ISBN: 0691010498Type of document: BookBibliography/Index: Includes bibliographical references and indexItem type | Current location | Collection | Call number | Status | Date due | Barcode | Item holds |
---|---|---|---|---|---|---|---|

Europe Campus Main Collection |
HG221 .W66 2003
(Browse shelf) 001244410 |
Available | 001244410 |

Includes bibliographical references and index

Digitized

Interest and Prices Foundations of a Theory of Monetary Policy Contents PREFACE xiii 1 The Return of Monetary Rules 1 The Importance of Price Stability 1.1 Toward a New "Neoclassical Synthesis" 6 1.2 Microeconomic Foundations and Policy Analysis 10 2 The Importance of Policy Commitment 2.1 Central Banking as Management of Expectations 15 2.2 Pitfalls of Conventional Optimal Control 18 3 Monetary Policy without Control of a Monetary Aggregate 3.1 Implementing Interest-Rate Policy 25 3.2 Monetary Policy in a Cashless Economy 31 4 Interest-Rate Rules 4.1 Contemporary Proposals 39 4.2 General Criticisms of Interest-Rate Rules 44 4.3 Neo-Wicksellian Monetary Theory 49 5 Plan of the Book PART I Analytical Framework 2 Price-Level Determination under Interest-Rate Rules 1 Price-Level Determination in a Cashless Economy 1.1 An Asset-Pricing Model with Nominal Assets 64 1.2 A Wicksellian Policy Regime 74 2 Alternative Interest-Rate Rules 2.1 Exogenous Interest-Rate Targets 86 61 62 1 4 14 24 37 55 85 2.2 The Taylor Principle and Determinacy 90 2.3 Inertial Responses to Inflation Variation 94 3 Price-Level Determination with Monetary Frictions 3.1 A Model with Transactions Frictions 102 3.2 Interest-Rate Rules Reconsidered 105 3.3 A Comparison with Money-Growth Targeting 106 3.4 Consequences of Nonseparable Utility 111 4 Self-Fulfilling Inflations and Deflations 4.1 Global Multiplicity Despite Local Determinacy 123 4.2 Policies to Prevent a Deflationary Trap 131 4.3 Policies to Prevent an Inflationary Panic 135 3 Optimizing Models with Nominal Rigidities 1 A Basic Sticky-Price Model 1.1 Pricesetting and Endogenous Output 143 1.2 Consequences of Prices Fixed in Advance 155 1.3 A New Classical Phillips Curve 158 1.4 Sources of Strategic Complementarity 163 2 Inflation Dynamics with Staggered Pricesetting 2.1 The Calvo Model of Pricesetting 177 2.2 A New Keynesian Phillips Curve 187 2.3 Persistent Real Effects of Nominal Disturbances 188 2.4 Consequences of Persistence in the Growth of Nominal Spending 197 2.5 Consequences of Sectoral Asymmetries 200 3 Delayed Effects of Nominal Disturbances on Inflation 3.1 Staggered Pricing with Delayed Price Changes 207 3.2 Consequences of Indexation to Past Inflation 213 4 Consequences of Nominal Wage Stickiness 4.1 A Model of Staggered Wagesetting 221 4.2 Sticky Wages and the Real Effects of Nominal Disturbances 226 4 A Neo-Wicksellian Framework for the Analysis of Monetary Policy 1 A Basic Model of the Effects of Monetary Policy 1.1 Nonlinear Equilibrium Conditions 239 1.2 A Log-Linear Approximate Model 243 2 Interest-Rate Rules and Price Stability 2.1 The Natural Rate of Interest 247 2.2 Conditions for Determinacy of Equilibrium 252 237 238 123 101 139 143 173 204 218 247 2.3 Stability under Learning Dynamics 261 2.4 Determinants of Inflation 276 2.5 Inflation Stabilization through Commitment to a Taylor Rule 286 2.6 Inflation Targeting Rules 290 3 Money and Aggregate Demand 3.1 An Optimizing IS-LM Model 295 3.2 Real-Balance Effects 299 4 Fiscal Requirements for Price Stability 5 Dynamics of the Response to Monetary Policy 1 Delayed Effects of Monetary Policy 1.1 Consequences of Predetermined Expenditure 322 1.2 Habit Persistence in Private Expenditure 332 2 Some Small Quantitative Models 2.1 The Rotemberg-Woodford Model 336 2.2 More Complex Variants 345 3 Monetary Policy and Investment Dynamics 1 3.Investment Demand with Sticky Prices 353 3.2 Optimal Pricesetting with Endogenous Capital 357 3.3 Comparison with the Basic Neo-Wicksellian Model 361 3.4 Capital and the Natural Rate of Interest 372 PART II Optimal Policy 6 Inflation Stabilization and Welfare 1 Approximation of Loss Functions and Optimal Policies 2 A Utility-Based Welfare Criterion 2.1 Output-Gap Stability and Welfare 393 2.2 Inflation and Relative-Price Distortions 396 3 The Case for Price Stability 3.1 The Case of an Efficient Natural Rate of Output 407 3.2 Consequences of a Mildly Inefficient Natural Rate of Output 411 3.3 Caveats 416 4 Extensions of the Basic Analysis 4.1 Transactions Frictions 420 4.2 The Zero Interest-Rate Lower Bound 427 4.3 Asymmetric Disturbances 435 381 383 392 295 311 320 321 336 352 405 419 4.4 Sticky Wages and Prices 443 4.5 Time-Varying Tax Wedges or Markups 448 5 The Case of Larger Distortions 7 Gains from Commitment to a Policy Rule 1 The Optimal Long-Run Inflation Target 1.1 The Inflationary Bias of Discretionary Policy 469 1.2 Extensions of the Basic Analysis 476 2 Optimal Responses to Disturbances 2.1 Cost-Push Shocks 486 2.2 Fluctuations in the Natural Rate of Interest 501 3 Optimal Simple Policy Rules 3.1 The Optimal Noninertial Plan 510 3.2 The Optimal Taylor Rule 513 4 The Optimal State-Contingent Instrument Path as a Policy Rule 5 Commitment to an Optimal Targeting Rule 5.1 Robustly Optimal Target Criteria 522 5.2 Implementation of a Targeting Rule 527 8 Optimal Monetary Policy Rules 1 A General Linear-Quadratic Framework 1.1 Optimal State-Contingent Paths 536 1.2 Alternative Forms of Policy Rules 543 1.3 Robustness to Alternative Types of Disturbances 547 1.4 Existence of Robustly Optimal Policy Rules 550 1.5 Optimal Instrument Rules 555 2 Optimal Inflation Targeting Rules 2.1 A Model with Inflation Inertia 560 2.2 A Model with Wages and Prices Both Sticky 565 2.3 A Model with Habit Persistence 568 2.4 Predetermined Spending and Pricing Decisions 569 2.5 Optimal Policy for a Small Quantitative Model 573 455 464 468 484 507 517 521 534 535 559 3 Optimal Interest-Rate Rules 582 3.1 An Optimal Rule for the Basic Neo-Wicksellian Model 583 3.2 Consequences of Inflation Inertia 592 3.3 Predetermined Spending and Pricing Decisions 604 3.4 Optimal Policy under Imperfect Information 606 4 Reflections on Currently Popular Policy Proposals 4.1 The Taylor Rule 610 4.2 Inflation-Forecast Targeting 619 610 APPENDIXES A Addendum to Chapter 2 A.1 Proof of Proposition 2.1 A.2 Proof of Proposition 2.2 A.3 Log-Linearization and Determinacy of Equilibrium A.4 Proof of Proposition 2.3 A.5 Proof of Proposition 2.4 A.6 Proof of Proposition 2.5 A.7 Proof of Proposition 2.7 A.8 Proof of Proposition 2.8 A.9 Proof of Proposition 2.9 A.10 Proof of Proposition 2.10 A.11 Proof of Proposition 2.11 A.12 Proof of Proposition 2.12 A.13 Proof of Proposition 2.13 A.14 Proof of Proposition 2.14 A.15 Proof of Proposition 2.15 A.16 Monetary Frictions with an Alternative Timing Convention A.17 The Example of Schmitt-Grohé and Uribe B Addendum to Chapter 3 B.1 Non-CES Demand and Variable Markups B.2 Proof of Proposition 3.3 B.3 Proof of Proposition 3.4 B.4 Proof of Proposition 3.5 B.5 Proof of Proposition 3.6 B.6 Proof of Proposition 3.7 B.7 Proof of Proposition 3.8 C Addendum to Chapter 4 C.1 Determinacy of Equilibrium in Small Linear Models: Useful Results C.2 Proof of Proposition 4.3 C.3 Proof of Proposition 4.4 C.4 Proof of Proposition 4.5 C.5 Proof of Proposition 4.6 C.6 Proof of Proposition 4.7 C.7 Proof of Proposition 4.9 C.8 Proof of Proposition 4.11 D Addendum to Chapter 5 D.1 Alternative Interpretation of the Habit Persistence Model 627 627 628 630 635 637 638 639 640 641 643 644 645 646 646 647 649 653 656 656 657 659 661 662 664 666 670 670 676 677 681 682 683 683 685 687 687 D.2 D.3 E.1 E.2 E.3 E.4 E.5 E.6 E.7 E.8 F.1 F.2 F.3 F.4 F.5 F.6 Proof of Proposition 5.1 Proof of Proposition 5.2 Proof of Proposition 6.1 Proof of Proposition 6.3 Proof of Proposition 6.6 Proof of Proposition 6.7 Proof of Proposition 6.9 Proof of Proposition 6.10 Proof of Proposition 6.11 Proof of Proposition 6.12 Proof of Proposition 7.6 Proof of Proposition 7.9 Proof of Proposition 7.10 The Optimal Noninertial Plan Proof of Proposition 7.15 Proof of Proposition 7.16 688 691 692 692 694 696 698 700 703 705 707 709 709 710 712 713 714 715 716 716 719 719 721 723 724 727 730 737 739 E Addendum to Chapter 6 F Addendum to Chapter 7 G Addendum to Chapter 8 G.1 Assumptions 8.3 and 8.4 G.2 Assumption 8.5 G.3 Technical Lemmas G.4 Proof of Proposition 8.5 G.5 Proof of Proposition 8.6 G.6 Proof of Proposition 8.7 G.7 Proof of Proposition 8.8 G.8 Proof of Proposition 8.9 G.9 Proof of Proposition 8.10 G.10 Proof of Proposition 8.11 REFERENCES 747 INDEX 765

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