Template-Type: ReDIF-Paper 1.0
Author-Name: Boris Hofmann
Author-X-Name-First: Boris
Author-X-Name-Last: Hofmann
Author-Name: Cristina Manea
Author-X-Name-First: Cristina
Author-X-Name-Last: Manea
Author-Name: Benoit Mojon
Author-X-Name-First: Benoit
Author-X-Name-Last: Mojon
Title: Targeted Taylor rules: some evidence and theory
Abstract: The paper introduces the concept of a targeted Taylor rule defined as a monetary policy rule which allows for different responses to demand– and supply–driven inflation. This new concept tallies with Federal Reserve's monetary policy strategy as reflected in its official communications. When estimated for the United States using recent decompositions of inflation in demand and supply factors, this new type of rule points to an almost fourfold stronger monetary policy reaction to demand– than to supply–driven inflation starting with Paul Volker's Chairmanship. We show how to embed the new targeted rule into a textbook New-Keynesian model when the economy is simultaneously hit by demand and supply shocks, and discuss its implications for business cycle fluctuations and welfare.
Creation-Date: 2024-12
File-URL: https://www.bis.org/publ/work1234.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1234.htm
File-Format: text/html
Number: 1234
Keywords: monetary policy trade–offs, targeted Taylor rules, inflation targeting
Classification-JEL: E12, E3, E52
Handle: RePEc:bis:biswps:1234