Avoiding Dark Corners : A Robust Monetary Policy Framework for the United States

Author/Editor: Ali Alichi ; Kevin Clinton ; Charles Freedman ; Ondra Kamenik ; Michel Juillard ; Douglas Laxton ; Jarkko Turunen ; Hou Wang
Publication Date: June 24, 2015
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Summary: The Fed has taken several steps towards strengthening its monetary framework over the past several years. Those steps have supported the Fed’s efforts to stimulate the economy through forward guidance despite being constrained by having policy rates at zero. We show that an optimal control approach to monetary policy, which includes the publication of a baseline forecast and a description of the uncertainties around that outlook, combined with an improvement in the Fed’s communications toolkit, could further enhance the effectiveness of Fed policy. In the current conjuncture, such a risk management approach to monetary policy would result in both a later liftoff of policy rates and a modest, but planned, overshooting of inflation.
Series: Working Paper No. 15/134
Subject(s): Central banks and their policies | Monetary policy | Inflation targeting | United States

Publication Date: June 24, 2015
ISBN/ISSN: 9781513595702/1018-5941 Format: Paper
Stock No: WPIEA2015134 Pages: 47
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