Current loan growth gap or expected future loan growth gap enters monetary policy rule

[Jesse]

Dear Johannes,
Thank you very much for your helpful guidance, I am grateful.
In my DSGE model, there is the Taylor type monetary policy rule, I would like to do a small modification about the monetary policy rule to suit the country that I investigate, the theory about modelling the country’s economy requires me to incorporate loan growth gap into the monetary policy rule, my question is should I include current loan growth=current loan / previous loan, or expected future loan growth=expected future loan/current loan.
1.Monetary policy rule including current loan growth Lt/Lt-1
R=rhoR(-1)+thetaoutput gap+gammainflation gap+betacurrent credit growth gap
1.Monetary policy rule including current loan growth Et(Lt+1)/Lt
R=rhoR(-1)+thetaoutput gap+gammainflation gap+betaexpected future credit growth gap
where Lt is loan in period t.
which monetary rule sounds better? the one with current credit growth or the one with expected future credit growth
Thank you very much and look forward to hearing from you.
Best regards,
Jesse

[jpfeifer]

The answer at

Which output gap to include in the Taylor rule?

There is no general answer to this. Do you want to build a normative or a positive/descriptive model? In terms of welfare, the sticky price sector may be the one to target, but actual central banks focus more on total output

also applies here

[Jesse]

Thank you, Johannes. I also would like to know that when could we include the expected output gap instead of current output gap into Tayloer’s monetary policy rule?

[jpfeifer]

Again, there is no technical reason for not being able to do that. It’s all about what you are trying to do. If it’s a normative analysis, you need to find out whether that results in higher welfare. If it’s a descriptive/positive analysis you need to find out whether that describes the actual central bank behavior better or fits the data better.