Intermediate target and information variable strategies revisited
Review articleOpen access

AbstractThe early literature on optimal monetary policy, based on strict reduced forms, tended to favor use of an information variable strategy over an intermediate target policy. The paper shows that unlike the early literature, in models in which private expectations play a role in the transmission of policy, both the exclusive use of an intermediate target strategy and a naive information variable strategy are suboptimal. In such models, optimal monetary policy requires the use of the money stock as both an intermediate target and as an information variable. The analysis also suggests that optimal policy can be viewed as a sophisticated information variable strategy in which the Federal Reserve incorporates information about private expectations into policy.

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