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Monetarism, indeterminacy and the great inflation
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Qureshi, Irfan (2016) Monetarism, indeterminacy and the great inflation. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick Economics Research Paper Series (WERPS) (1123 ).
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Official URL: https://warwick.ac.uk/fac/soc/economics/research/w...
Abstract
I study whether money growth targeting leads to indeterminacy in the price level. I extend a conventional framework and show that the price level may be indeterminate if the central bank’s response to money growth is weak even when the Taylor principle is satisfied. Based on this reasoning, policy coefficients estimated using novel FOMC meeting-level data propose a new channel of the policy mistakes that may have triggered indeterminacy during the Great Inflation. I show that ‘passively’ pursuing money growth objectives generates significantly larger welfare loss compared to alternative specifications of the monetary policy rule but ‘active’ money growth targeting drastically minimizes welfare loss. I confirm the relationship between money growth objectives and macroeconomic volatility using cross-country evidence.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Chicago school of economics, Inflation (Finance) | ||||
Series Name: | Warwick Economics Research Paper Series (WERPS) | ||||
Publisher: | University of Warwick, Department of Economics | ||||
Place of Publication: | Coventry | ||||
ISSN: | 2059-4283 | ||||
Official Date: | June 2016 | ||||
Dates: |
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Number: | 1123 | ||||
Number of Pages: | 55 | ||||
Institution: | University of Warwick | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published |
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