<p>When the central bank has output stability preferences, it is true that Taylor's rule (TR) is suboptimal compared to optimal monetary policy (MPR) if an inflationary shock occurs.
But when the central bank has preferences for price stability, does Taylor's rule (TR) continue to be optimal if the same shock occurs? if not, under what conditions?
It would be better to have a numerical proof</p>

CC BY-SA 4.0
2023-07-07T15:48:42.773Z
Could you please state to what model you are referring to and what you mean with "optimal monetary policy" (what you are maximizing?).
Don
CC BY-SA 4.0
2023-07-07T21:03:29.907Z
I'm referring to the static version of the New Keynes DSGE model, described by: IS, AS and interest rate rule IRR. The interest rate rule could be Taylor rule or "optimal monetary policy rule", that is the optimal interest rate rule obtained minimizing the central bank loss function.
Jenny110
<monetary-policy><central-banking>
Taylor rule and central bank preferences
Jenny110
# Taylor rule and central bank preferences

(Asked by: username_0 on 2023-07-05)

When the central bank has output stability preferences, it is true that Taylor's rule (TR) is suboptimal compared to optimal monetary policy (MPR) if an inflationary shock occurs.
But when the central bank has preferences for price stability, does Taylor's rule (TR) continue to be optimal if the same shock occurs? if not, under what conditions?
It would be better to have a numerical proof

**Tags:** monetary-policy, central-banking

> **Comments:**
> **username_1**: Could you please state to what model you are referring to and what you mean with "optimal monetary policy" (what you are maximizing?).  
> **username_0**: I'm referring to the static version of the New Keynes DSGE model, described by: IS, AS and interest rate rule IRR. The interest rate rule could be Taylor rule or "optimal monetary policy rule", that is the optimal interest rate rule obtained minimizing the central bank loss function.  

---

## 0 answers

