DP4083 Poole in the New Keynesian Model

Author(s): Fabrice Collard, Harris Dellas
Publication Date: October 2003
Keyword(s): macroeconomic volatility, poole, targeting, welfare
JEL(s): E32, E52
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4083

We study the properties of alternative central bank targeting procedures within the standard New Keynesian model. We find that Poole?s famous insights concerning the output stabilization properties of money and interest-rate targeting obtain when intertemporal substitution is low, and that output volatility rankings do not induce similar welfare rankings. Unlike the popular presumption, money targeting always fares better for money demand shocks. For fiscal shocks, money targeting does better for low and worse for high degree of intertemporal substitution. The opposite pattern obtains for supply shocks.