تداوم تورم و طراحی سیاست های پولی قوی

This paper examines the performance of optimised interest-rate rules when there is uncertainty about a key determinant of the monetary transmission mechanism, namely the degree of persistence characterising the inflation process. The paper focuses on the euro area and utilises two variants of an estimated small-scale macroeconomic model featuring distinct types of staggered contracts specifications which induce quite different degrees of inflation persistence. The paper shows that a cautious monetary policy-maker is well-advised to design and implement interest-rate policies under the assumption that inflation persistence is high when there is considerable uncertainty about the prevailing degree of inflation persistence. Such policies are characterised by a relatively aggressive response to inflation developments and exhibit a substantial degree of inertia.

There is an active and rapidly growing literature on the evaluation of structural models of inflation determination.1 While theoretical models, starting with the staggered contracts models of Taylor (1980) and Calvo (1983), propose that current inflation depends on future inflation and a measure of current demand or cost pressures, recent empirical research has highlighted that these models, at least in their simplest specification, typically fail to explain the high degree of inflation persistence observed in the data. In fact, most empirical studies that have focused on estimating variants of the New-Keynesian Phillips Curve (NKPC), based on either Taylor or Calvo-type staggered contracts, have obtained highly significant estimates of the coefficient on lagged inflation. At the same time, Taylor (2000) and Cogley and Sargent (2001) have observed that the degree of persistence in U.S. inflation has been drifting downward in the 1980s and 1990s as inflation has come under control. Taylor (2000) suggests that the diminished degree of inflation persistence may be due to changes in the orientation of monetary policy. In an environment with a stable and transparent monetary policy regime, inflation expectations may become contained and, hence, price and wage setters may be less inclined to change their contracts in response to shocks. Similarly, Brayton et al. (1999) argue that globalisation has increased competition in the products markets, thereby squeezing mark-ups and yielding reductions in prices. Although Staiger et al. (2001) do not find empirical evidence in favour of such theories, more favourable evidence may emerge as data from the low-inflation regime accumulate. In the light of the ongoing controversy about the appropriate specification of structural models of inflation determination and more recent indications that the law of motion for inflation may have altered, this paper investigates the performance of simple monetary policy rules when the monetary policy-maker is faced with uncertainty about the degree of persistence characterising the inflation process. The degree of inflation persistence represents a key determinant of the monetary transmission mechanism and has important implications for the ability of monetary policy to stabilise inflation relative to output. Hence, monetary policy rules should ideally be designed to perform reasonably well under a range of alternative models of inflation determination which differ with respect to the degree of inflation persistence that they induce. To examine the consequences of different degrees of inflation persistence for the performance of monetary policy rules, we concentrate on the euro area for which such an examination seems particularly relevant. First, the euro area is a new and relatively unexplored entity and, hence, the European Central Bank (ECB), with its rather short history, faces substantial uncertainty about the characteristics of the aggregate euro area inflation process. And second, the mixed empirical evidence based on data for individual euro area member states provides no clear indication of what type of model should be chosen for modelling the aggregate inflation process. Against this background, we utilise two variants of the small-scale euro area model developed by Coenen and Wieland (2005) which feature different types of staggered contracts specifications: the nominal wage contracting specification due to Taylor (1980) and the relative real wage contracting specification originally proposed by Buiter and Jewitt (1981) and adapted to empirical work by Fuhrer and Moore (1995).2 These two contracting specifications differ with respect to the degree of inflation persistence that they induce, because relative real wage contracts give more weight to past inflation.3 Comparing the euro area results to those obtained for France, Germany and Italy separately, Coenen and Wieland (2005) show that the relative real wage contracting specification does quite well in countries which transitioned out of a high inflation regime such as France and Italy, while the nominal wage contracting specification describes German data better which exhibit a substantially lower degree of inflation persistence. This finding may be attributed to different degrees of nominal rigidity in the price and wage-setting behaviour across economies, but it may also reflect different degrees of credibility of the respective monetary regimes over the estimation period.4 Thus, as far as the future of the European Economic and Monetary Union (EMU) is concerned, the estimation based on historical euro area data may overstate the case for the relative real wage contracting model. In this case, nominal rigidities à la Taylor may provide a better description of the inflation process than Fuhrer–Moore-type rigidities and, in terms of evaluating alternative monetary policy strategies, a policy-maker who is optimistic about the output losses associated with stabilising inflation may prefer to use the nominal wage contracting specification, while a pessimist may prefer the relative real wage contracting specification.5 Given the high degree of uncertainty about the determination of euro area inflation, however, a robust monetary policy strategy for the euro area should perform reasonably well under both types of contracting specifications. In terms of methodology, this paper builds on recent work by Levin et al., 1999 and Levin et al., 2003—henceforth referred to as LWW (1999, 2003)—evaluating the performance and robustness of simple monetary policy rules across five different models of the U.S. economy.6 This methodology involves implementing simple reaction functions describing the response of the short-term nominal interest rate to inflation and the output gap, either observed or forecast, and then optimising over the respective response coefficients. The performance of these optimised interest-rate rules is then evaluated with regard to their ability to stabilise inflation and output around their targets, while avoiding undue fluctuations in the nominal interest rate itself.7 Unlike the papers by LWW, this paper focuses on one particular determinant of the monetary transmission mechanism, namely the degree of inflation persistence that is induced by alternative models of inflation determination. Thus, while LWW consider a larger set of models which exhibit substantial differences in theoretical specification, in degree of aggregation, in estimation sample and in estimation methodology, we control for all differences except for the different degrees of structural inflation persistence induced by the two distinct staggered contracts specifications. As a result, any differences in our findings can be attributed to the different degrees of inflation persistence induced by the two types of contracting specifications. We start our analysis by comparing the characteristics of inflation and output-gap dynamics under the two distinct staggered contracts specifications with an empirical benchmark policy rule imposed. To this end, we report the responses of inflation and the output gap to an unexpected tightening of monetary policy to illustrate the implied differences in the transmission of monetary policy. Our subsequent analysis proceeds in two steps. Following the methodology proposed by LWW, we first evaluate the stabilisation performance of both outcome and forecast-based interest-rate rules which are designed for each of the two staggered contracts specifications separately. We then examine the robustness of these optimised interest-rate rules in a situation when the monetary policy-maker does not know which of the two staggered contracts specifications represents the ‘true’ model of the inflation process. Specifically, we consider two distinct sources of making policy mistakes. First, the policy-maker is confronted with uncertainty as to which of the two contracting specifications to rely upon when designing interest-rate rules geared towards stabilising inflation relative to output. And second, in the case of forecast-based rules, the policy-maker is confronted with uncertainty regarding the choice of the forecasting model needed to implement a given forecast-based interest-rate rule. Of course, the second type of mistake is most likely to occur in combination with the first. Based on our analysis, we conclude that it may be very risky to rely too heavily on interest-rate rules which are designed and implemented under the assumption that the degree of structural inflation persistence is low. Following the prescriptions of such rules may result in very poor stabilisation outcomes if the true inflation process turns out to be considerably more persistent; that is, when the policy-maker is underestimating the degree of inflation persistence. In contrast, rules which are designed and implemented under the assumption that the degree of inflation persistence is relatively high also perform reasonably well if inflation is considerably less persistent; that is, when overestimating the degree of inflation persistence. Hence, a cautious monetary policy-maker is well-advised to take monetary policy decisions under the assumption that the inflation process is characterised by a high degree of persistence until strong evidence in favour of a low-persistence regime has emerged. 8 While forecast-based rules may result in particularly poor stabilisation outcomes if they are implemented using forecasts from a model that largely underpredicts the degree of persistence, we show that pooling of forecasts from a possibly diverse set of models, rather than relying on any single model's forecast, can serve as a means of insuring the policy-maker against risks arising from the use of the wrong forecasting model. Finally, we identify the operating characteristics of simple interest-rate rules that are robust in a situation characterised by substantial uncertainty about the degree of inflation persistence. To this end, we optimise the interest-rate response coefficients across the two contracting specifications simultaneously. Our results show that robust rules are tilted towards the specification that induces a high degree of persistence. Specifically, we show that robust rules are characterised by a relatively aggressive response to inflation and exhibit a substantial degree of inertia. Incidentally, we find that a relatively aggressive first-difference rule, which relates changes in the short-term nominal interest rate to the 1-year-ahead forecast of inflation and the current output gap already goes a long way towards making monetary policy robust. To the extent that such a rule performs remarkably well under both types of contracts and in the light of the substantial uncertainty about how to model euro area inflation, we tentatively conclude that such a rule may serve as a useful benchmark for model-based evaluations of monetary policy in the euro area. The remainder of this paper is organised as follows. Section 2 outlines the behavioural equations of the euro area model with the two distinct staggered contracts specifications and illustrates the implied differences in inflation and output-gap dynamics under an estimated benchmark rule. Section 3 briefly describes the methodology used for evaluating the performance of simple interest-rate rules and provides a set of optimised benchmark rules for each of the two staggered contracts models. Section 4 evaluates the robustness of these optimised benchmark rules when there is uncertainty about the prevailing degree of inflation persistence, while Section 5 identifies the operating characteristics of simple interest-rate rules that perform reasonably well in such an environment. Section 6 concludes and discusses some directions for future research.

We have examined the robustness of simple interest-rate rules to the markedly different degrees of inflation persistence that are induced by two distinct types of staggered contracts specifications within an estimated small-scale macroeconomic model of the euro area. Our central conclusion is that it may be very risky to rely too heavily on rules that are designed and implemented under the assumption that the degree of structural inflation persistence is low. These rules may result in very poor stabilisation outcomes if the inflation process turns out to be considerably more persistent in reality. In contrast, rules designed and implemented under the assumption that the degree of inflation persistence is relatively high also perform reasonably well if inflation persistence is actually low. The reason for this asymmetry in behaviour is that inflation dynamics are much more sensitive to even small deviations from the optimal response coefficients if the degree of inflation persistence is high. Hence, a cautious monetary policy-maker is well-advised to take monetary policy decisions under the assumption that the economy is characterised by a substantial degree of inflation persistence until strong evidence in favour of a regime with low-inflation persistence has emerged. In this context, we also show that using pooled forecasts can serve as a means of insuring the policy-maker against the related risk arising from the use of the wrong forecasting model when there is uncertainty on how to model the inflation process. Regarding the operating characteristics of simple interest-rate rules that are designed with a view to achieving robustness to largely different degrees of structural inflation persistence, we show that robust rules respond to inflation relatively aggressively and incorporate a substantial degree of inertia. Incidentally, we find that a relatively aggressive first-difference rule which relates changes in the short-term nominal interest rate to the 1-year-ahead inflation forecast and the current output gap already goes a long way towards making monetary policy robust to uncertainty regarding the degree of inflation persistence. To the extent that such a rule is found to perform remarkably well under both types of staggered contracts and in the light of the considerable uncertainty about how to model euro area inflation, we tentatively conclude that such a rule may serve as a useful benchmark for model-based evaluations of monetary policy in the euro area. There are several directions in which the analysis presented in this paper could be extended. First, while this paper has focused on the robustness of optimised simple interest-rate rules, it would be interesting to also investigate the robustness of the fully optimal policies under commitment which were solely used as a benchmark for evaluating the stabilisation performance of optimised interest-rate rules in this paper. A first attempt in this direction has been undertaken in Angeloni et al. (2003), though a more rigorous analysis using techniques developed in Giannoni and Woodford (2002) is left for future research. Second, in the light of the good performance of first-difference rules under both types of staggered contracts, it would be interesting to compare the robustness of rules which target the price level instead of the inflation rate, or a combination of both. Using a simpler theoretical framework, an initial study relevant to this has been undertaken by Batini and Yates (2003). Third, one could approach the robustness analysis using alternative methodologies. For example, one could design interest-rate rules under a minimax criterion aimed at avoiding the worst possible outcome under either of the two staggered contracts specifications. A recent example of robustness analysis using a minimax criterion is the study by Küster and Wieland (2005). Last, but not least, it would be important to check if the central conclusion from the present study is sensitive to alternative models of inflation determination. This could essentially be achieved by extending the analysis to a larger set of empirical models of the inflation process.