The Science of Monetary Policy: A New Keynesian Perspective

  title={The Science of Monetary Policy: A New Keynesian Perspective},
  author={Richard Clarida and Jordi Gal{\'i} and Mark J. Gertler},
  journal={Monetary Economics},
This paper reviews the recent literature on monetary policy rules. We exploit the monetary policy design problem within a simple baseline theoretical framework. We then consider the implications of adding various real world complications. Among other things, we show that the optimal policy implicitly incorporates inflation targeting. We also characterize the gains from making a credible commitment to fight inflation. In contrast to conventional wisdom, we show that gains from commitment may… 
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