Discouraging Deviant Behavior in Monetary Economics

Lawrence Christiano; Yuta Takahashi

doi:10.3386/w24949

Discouraging Deviant Behavior in Monetary Economics

Lawrence Christiano & Yuta Takahashi

Working Paper 24949

DOI 10.3386/w24949

Issue Date August 2018

We consider a model in which monetary policy is governed by a Taylor rule. The model has a unique equilibrium near the steady state, but also has other equilibria. The introduction of a particular escape clause into monetary policy works like the Taylor principle to exclude the other equilibria. We reconcile our finding about the escape clause with the sharply different conclusion reached in Cochrane (2011). Atkeson et al. (2010) study a different version of the escape clause policy, but that version is fragile in that it lacks a crucial robustness property.

We are grateful for conversations with Marco Bassetto, V.V. Chari, John Cochrane, Martin Eichenbaum, Patrick Kehoe, Emi Nakamura, Armen Nurbekyan and Jón Steinsson. Although discussions with these people helped us greatly to clarify our thoughts, they do not necessarily agree with the arguments described in this paper. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

Lawrence Christiano
Non-Northwestern compensated activities: 2010 through 2018.

Short lecture courses at: Bank of Korea, International Monetary Fund, Kiel Institute for World Economics, Gerzensee Study Center, Central Bank of Peru, Central Bank of Portugal, Central Bank of Colombia, Central Bank of Hungary, Swiss National Bank, Central Bank of the Czech Republic, Renmin University, China, Shanghai Advanced Institute of Finance, Shanghai, Central Bank of Armenia, Southwest University of Finance and Economics in Chengdu, China.

Consultant, Central Bank of Brazil, Swiss National Bank.

Federal Reserve Bank of Atlanta, advisor.

Federal Reserve Bank of Chicago, advisor.

Federal Reserve Bank of Minneapolis, advisor.

Consultant, Global Markets Institute at Goldman Sachs.
MARC RIS BibTeΧ

Discouraging Deviant Behavior in Monetary Economics

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