The Role of Central Bank Operating Procedures in an Economy with Productive Government Spending

Jordi Caballé, Jana Hromcová

Research output: Contribution to journalArticleResearchpeer-review

1 Citation (Scopus)

Abstract

We reexamine some of the issues related to the choice of the monetary policy instrument in a dynamic general equilibrium model exhibiting endogenous growth in which a fraction of productive government spending is financed by means of issuing currency. We evaluate the performance of four monetary instruments: monetary aggregate targeting, nominal interest rate targeting, inflation rate targeting and real interest rate targeting. We show that a switch from any other targeting procedure towards the real interest rate targeting may be welfare improving even if the real interest rate targeting is a policy that delivers the most volatile consumption in the short run. © 2010 Springer Science+Business Media, LLC.
Original languageEnglish
Pages (from-to)39-65
JournalComputational Economics
Volume37
DOIs
Publication statusPublished - 1 Jan 2011

Keywords

  • Monetary policy targets
  • Productive government spending

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