"Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule

@article{Sargent1975RationalET,
  title={"Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule},
  author={Thomas J. Sargent and Neil Wallace},
  journal={Journal of Political Economy},
  year={1975},
  volume={83},
  pages={241 - 254}
}
Alternative monetary policies are analyzed in an ad hoc macroeconomic model in which the public's expectations about prices are rational. The ad hoc model is one in which there is long-run neutrality, since it incorporates the aggregate supply schedule proposed by Lucas. Following Poole, the paper studies whether pegging the interest rate or pegging the money supply period by period minimizes an ad hoc quadratic loss function. It turns out that the probility distribution of output--dispersion… Expand
Rational expectations, the government budget constraint, and the optimal money supply☆
Abstract A stylized macroeconomic model incorporating a surprise supply function is examined. Extension of the model to recognize the government budget constraint makes it clear that random elementsExpand
Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule
  • S. Fischer
  • Economics
  • Journal of Political Economy
  • 1977
The paper is concerned with the role of monetary policy and argues that activist monetary policy can affect the behavior of real output, rational expectations notwithstanding. A rational expectationsExpand
Choosing a monetary instrument The case of supply-side shocks
Abstract This paper examines the monetary instrument choice problem in models with an explicit supply sector and endogenous prices and price expectations. We use the popular linear-quadraticExpand
INFORMATIONAL IMPLICATIONS OF MONEY, INTEREST RATE, and PRICE RULES
The information available to private agents determines the effectiveness of various types of monetary policy. In an economy in which private agents have differential information sets, the ranking ofExpand
Optimal monetary policy under rational expectations with a micro-based supply function
Abstract Combination monetary policies to stabilize both price and output in the face of IS, LM, and supply shocks are examined in a typical macromodel with the aggregate supply function expanded toExpand
Rational expectations, discrete price setting and the role of monetary policy
The role of monetary policy is examined in a class of discrete price-setting rational expectations models, which differ from current continuous clearing models in taking for granted that there is aExpand
Central Bank Preferences and Macroeconomic Equilibrium
Abstract We investigate the behavior of an optimizing monetary authority in an economy described by a simple AS/AD model. We develop a simple methodology for deriving the optimal policy, and theExpand
Interest rate policy and the price puzzle in a quantitative business cycle model
In the empirical literature, monetary policy shocks are commonly measured as an innovation to a short-term nominal interest rate. In contrast, the majority of monetary business cycle models treats aExpand
STABILIZING POWERS OF MONETARY POLICY UNDER RATIONAL EXPECTATIONS
Publisher Summary This chapter discusses the sense in which monetary policy, even systematic and correctly anticipated policy, can make a difference for the stability of output in a rationalExpand
Price Level Determinacy with an Interest Rate Policy Rule and Rational Expectations
This paper reconsiders a result obtained by Sargent and Wallace, namely, that price level indeterminacy obtains in their well-known model if the monetary authorities adopt a policy feedback rule forExpand
...
1
2
3
4
5
...

References

SHOWING 1-10 OF 10 REFERENCES
Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model: Rejoinder
In this paper a solution to the "instrument problem"-more commonly known as the "target problem"-is determined within the context of the Hicksian IS-LM model. Baldly stated, the problem arises as aExpand
Rational Expectations and the Theory of Price Movements
In order to explain fairly simply how expectations are formed, we advance the hypothesis that they are essentially the same as the predictions of the relevant economic theory. In particular, theExpand
Some International Evidence on Output-Inflation Tradeoffs.
This paper reports the results of an empirical study of real output-inflation tradeoffs, based on annual time-series from eighteen countries over the years 1951-67. These data are examined from theExpand
On Passive Money
  • J. Olivera
  • Economics
  • Journal of Political Economy
  • 1970
There are two ways in which the quantity of money may be included in a general equilibrium system: as a datum, whose value is fixed exogenously, or as an unknown, whose value is determined by theExpand
Optimal choice of monetary policy instruments in a simple stochastic macro model
I. Introduction, 197. — II. The instrument problem, 199. — III. A static stochastic model, 203.— IV. The combination policy, 208. — V. A dynamic model, 209. — VI. Concluding observations, 214. —Expand
Rational Expectations and the Dynamics of Hyperinflation." Internat
  • Brookings Papers on Economic Activity,
  • 1973
Tests of the aggregate supply hypothesis are reported by Lucas (1973) and Sargent
  • 1973