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Article . 2015 . Peer-reviewed
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SSRN Electronic Journal
Article . 2015 . Peer-reviewed
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Article . 2015 . Peer-reviewed
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Research . 2015
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Research . 2015
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Is Optimal Monetary Policy Always Optimal?

Authors: Davig, Troy; Gurkaynak, Refet S.;

Is Optimal Monetary Policy Always Optimal?

Abstract

No. And not only for the reason you think. In a world with multiple inefficiencies the single policy tool the central bank has control over will not undo all inefficiencies; this is well understood. We argue that the world is better characterized by multiple inefficiencies and multiple policy makers with various objectives. Asking the policy question only in terms of optimal monetary policy effectively turns the central bank into the residual claimant of all policy and gives the other policymakers a free hand in pursuing their own goals. This further worsens the tradeoffs faced by the central bank. The optimal monetary policy literature and the optimal simple rules often labeled flexible inflation targeting assign all of the cyclical policymaking duties to central banks. This distorts the policy discussion and narrows the policy choices to a suboptimal set. We highlight this issue and call for a broader thinking of optimal policies.

Countries
Germany, Turkey
Keywords

330, monetary policy, central banking; fiscal policy; monetary policy; optimal policy; optimal policy mix, Optimal Policy Mix, Monetary Policy, Central Banking,Monetary Policy,Fiscal Policy,Optimal Policy,Optimal Policy Mix, E58, optimal policy, E52, ddc:330, Central Banking, optimal policy mix, Fiscal Policy, E61, central banking, monetary policy, fiscal policy, optimal policy, optimal policy mix, Optimal Policy, E02, central banking, fiscal policy, jel: jel:E61, jel: jel:E02, jel: jel:E52, jel: jel:E58

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    This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
    6
    popularity
    This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
    Average
    influence
    This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
    Top 10%
    impulse
    This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
    Top 10%
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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
6
Average
Top 10%
Top 10%
Green
bronze