Regis Barnichon, Federal Reserve Bank of San Francisco

A Sufficient Statistic Approach for Optimal Monetary Policy (with G. Mesters)
Wednesday, 15 May 2019 - 2:30 pm to 4:00 pm
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Contact person: 
Lilia Karnizova
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Cost to attend: 
Free of charge
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Marleau Lecture Series

Marleau Lecture Series on Economic and Monetary Policy

If a monetary policy path is chosen optimally, any perturbation to that path should have no first-order effect on welfare. Drawing on this insight, we show that the impulse responses to monetary shocks are sufficient statistics to evaluate the optimality of a given policy, and we propose a ``sufficient-statistic targeting rule'' that preserves all the benefits of targeting rules ---simplicity, transparency and immunity to time-consistency problems---, while remedying their one major limitation: non-robustness to model variations. The sufficient-statistic targeting rule encompasses earlier targeting rules from the literature and generalizes the Brainard conservatism principle to a model-free setting. We test the optimality of the Fed monetary policy over the recent period, and we reject that the Fed policy was/is optimal