{
  "title": "Avoiding Dark Corners: A Robust Monetary Policy Framework for the United States",
  "publication": "IMF Working Papers, June 24, 2015",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/avoiding-dark-corners-a-robust-monetary-policy-framework-for-the-united-states-43025",
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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.",
  "sections": [
    {
      "heading": "Authors and publication",
      "content": "- By Ali Alichi, Kevin Clinton, Charles Freedman, Ondrej Kamenik, Michel Juillard, Douglas Laxton, Jarkko Turunen, Hou Wang\n- June 24, 2015\n- IMF Working Papers, Issue: 134; Series: Working Paper No. 2015/134\n- Pages: 47\n- Volume: 2015\n- DOI: https://doi.org/10.5089/9781513595702.001\n- Stock No: WPIEA2015134\n- ISBN: 9781513595702\n- ISSN: 1018-5941"
    },
    {
      "heading": "Summary of central argument",
      "content": "- The Fed has taken several steps towards strengthening its monetary framework over the past several years.\n- Those steps have supported the Fed’s efforts to stimulate the economy through forward guidance despite being constrained by having policy rates at zero.\n- An optimal control approach to monetary policy, including publication of a baseline forecast and a description of the uncertainties around that outlook, combined with improved communications, could further enhance the effectiveness of Fed policy.\n- In the current conjuncture, such a risk management approach would result in both a later liftoff of policy rates and a modest, but planned, overshooting of inflation."
    },
    {
      "heading": "Key themes and analytical focus",
      "content": "- Central bank policy rate and FOMC policy rate forecast\n- Inflation dynamics and measurement:\n  - Inflation equation\n  - Inflation expectation\n  - Inflation implication\n  - Inflation objective\n  - Inflation Targeting\n- Monetary policy tools and design:\n  - Optimal Control approach\n  - Interest rate path and reaction function\n  - Forward guidance and communications toolkit\n- Real economy interactions:\n  - Output gap\n  - Phillips curve\n  - Prices and production\n  - Real interest rates\n- Policy action and risk management under a zero lower bound constraint"
    },
    {
      "heading": "Main findings and implications",
      "content": "- Strengthened monetary framework and forward guidance have aided stimulus when policy rates are at zero.\n- Publishing a baseline forecast plus uncertainties improves transparency and policy effectiveness.\n- Combining an optimal control framework with enhanced communications leads to different policy timing and inflation dynamics:\n  - Later liftoff of policy rates\n  - A modest, but planned, overshooting of inflation"
    },
    {
      "heading": "Policy recommendations",
      "content": "- Adopt an optimal control framework for monetary policy that:\n  - Publishes a baseline forecast.\n  - Describes the uncertainties around the baseline outlook.\n- Improve the Fed’s communications toolkit to make forward guidance and risk-management approaches more effective.\n- Use a risk management approach to guide timing of liftoff and allow deliberate, modest inflation overshooting when appropriate.\n\nSource: IMF Working Paper \"Avoiding Dark Corners: A Robust Monetary Policy Framework for the United States\", June 24, 2015.\n\n---\n\n Content in this bundle\n\n- wp15134\n  - wp15134 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp15134 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/avoiding-dark-corners-a-robust-monetary-policy-framework-for-the-united-states-43025"
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    "Authors: Ali Alichi, Kevin Clinton, Charles Freedman, Ondrej Kamenik, Michel Juillard, Douglas Laxton, Jarkko Turunen, Hou Wang",
    "Published: June 24, 2015",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513595702.001",
    "By Ali Alichi, Kevin Clinton, Charles Freedman, Ondrej Kamenik, Michel Juillard, Douglas Laxton, Jarkko Turunen, Hou Wang",
    "June 24, 2015",
    "IMF Working Papers, Issue: 134; Series: Working Paper No. 2015/134",
    "Pages: 47",
    "Volume: 2015",
    "DOI: https://doi.org/10.5089/9781513595702.001",
    "Stock No: WPIEA2015134",
    "ISBN: 9781513595702",
    "ISSN: 1018-5941",
    "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.",
    "An optimal control approach to monetary policy, including publication of a baseline forecast and a description of the uncertainties around that outlook, combined with improved communications, could further enhance the effectiveness of Fed policy.",
    "In the current conjuncture, such a risk management approach would result in both a later liftoff of policy rates and a modest, but planned, overshooting of inflation.",
    "Central bank policy rate and FOMC policy rate forecast",
    "Inflation dynamics and measurement:",
    "Monetary policy tools and design:",
    "Real economy interactions:",
    "Policy action and risk management under a zero lower bound constraint",
    "Strengthened monetary framework and forward guidance have aided stimulus when policy rates are at zero.",
    "Publishing a baseline forecast plus uncertainties improves transparency and policy effectiveness.",
    "Combining an optimal control framework with enhanced communications leads to different policy timing and inflation dynamics:",
    "Adopt an optimal control framework for monetary policy that:",
    "Improve the Fed’s communications toolkit to make forward guidance and risk-management approaches more effective.",
    "Use a risk management approach to guide timing of liftoff and allow deliberate, modest inflation overshooting when appropriate.",
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