Discussion paper

DP5609 Monetary Regimes: Is There a Trade-Off Between Consumption and Employment Variability?

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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Citation

Minford, P, K Matthews, B Webb and D Meenagh (2006), ‘DP5609 Monetary Regimes: Is There a Trade-Off Between Consumption and Employment Variability?‘, CEPR Discussion Paper No. 5609. CEPR Press, Paris & London. https://cepr.org/publications/dp5609