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Monetary Policy Objectives and Money's Role in U.S. Business Cycles

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  • Eurilton Araújo
Abstract
In a sticky-price model in which money can potentially play a key role in business cycles, I estimate monetary policy preference parameters under commitment in a timeless perspective. Empirical findings suggest that inflation stabilization and interest rate smoothing are the main objectives of monetary policy, with a very small role for output gap stabilization. Though the money growth rate is irrelevant as an argument in the Fed's objective function, its presence in structural equations improves model fit. Moreover, marginal likelihood comparisons show that the data favor Taylor rules over optimal policies. Finally, the way of describing monetary policy matters for macroeconomic dynamics.

Suggested Citation

  • Eurilton Araújo, 2015. "Monetary Policy Objectives and Money's Role in U.S. Business Cycles," Working Papers Series 403, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:403
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    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps403.pdf
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    References listed on IDEAS

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    Cited by:

    1. Tania Karamisheva, 2021. "Measuring the Business Cycle in Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 17-38.
    2. Magdalena Osińska & Tadeusz Kufel & Marcin Błażejowski & Paweł Kufel, 2020. "Modeling mechanism of economic growth using threshold autoregression models," Empirical Economics, Springer, vol. 58(3), pages 1381-1430, March.

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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