This paper examines various interest rate rules, as well as policies derived by solving optimal control problems, for their ability to dampen economic fluctuations caused by random shocks. A tax rate rule is also considered. A multicountry econometric model is used for the experiments. The...

It has been nearly twenty years since Poole (1970) wrote his classic article on the optimal choice of monetary policy instruments in a stochastic IS-LM model. Poole assumed that the monetary authority (henceforth called the Fed) can control the interest rate or the money supply exactly. These...

The paper analyzes the question why the U.S. economy in the 2000:4-2004:3 period was sluggish in light of the large expansionary fiscal and monetary policies that took place. The answer does not appear to be that there were large structural changes in the economy or systematic bad shocks. This...