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Discussion Paper Details

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Title: Monetary Regimes: Is There a Trade-Off Between Consumption and Employment Variability?

Author(s): Kent Matthews, David Meenagh, Patrick Minford and Bruce Webb

Publication Date: April 2006

Keyword(s): heterogenous welfare, interest rate setting, money supply rules, price level targeting and robustness

Programme Area(s): International Macroeconomics

Abstract: Macro models generally assume away heterogeneous welfare in assessing policies. We investigate here within two aggregative models - one with a representative agent, the other a long-used forecasting model of the UK - whether allowing for differences in welfare functions (specifically between those in continuous employment and those with frequent unemployment spells) alters the rankings of monetary policies. We find that it does but that a set of policies (money supply targeting implemented by money supply control) can be found that are robust in the sense of avoiding very poor outcomes for either of the two groups.

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Bibliographic Reference

Matthews, K, Meenagh, D, Minford, P and Webb, B. 2006. 'Monetary Regimes: Is There a Trade-Off Between Consumption and Employment Variability?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5609