Mandates and Monetary Rules in a New Keynesian Framework

We develop a general mandate framework for delegating monetary policy to an instrument-independent, but goal-dependent central bank (CB). The mandate consists of: (i) a simple quadratic loss function penalizing deviations from target macroeconomic variables; (ii) a Taylor-type nominal interest-rate rule with target variables that match those in the loss function (iii) a zero-lower-bound (ZLB) constraint on the nominal interest rate taking the form of an unconditional probability of ZLB episodes and (iv) a long-run inflation target. The CB remains free to choose the strength of its response to the target variables specified by the mandate. An estimated standard New Keynesian model is used to compute household-welfare-optimal mandates with these features. We find that weights for real variables in the loss function are small compared with inflation except for the real wage growth mandate and that the optimized rule is close to a price-level rule across all mandates