Avoiding Dark Corners

Download or read book Avoiding Dark Corners written by Ali Alichi and published by International Monetary Fund. This book was released on 2015-06-25 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Fed has taken several steps towards strengthening its monetary framework over the past several years. Those steps have supported the Fed’s efforts to stimulate the economy through forward guidance despite being constrained by having policy rates at zero. We show that an optimal control approach to monetary policy, which includes the publication of a baseline forecast and a description of the uncertainties around that outlook, combined with an improvement in the Fed’s communications toolkit, could further enhance the effectiveness of Fed policy. In the current conjuncture, such a risk management approach to monetary policy would result in both a later liftoff of policy rates and a modest, but planned, overshooting of inflation.