How to interpret osr results

Optimal Policy
1

Optimal Taylor rule parameters gammax0 gammac0 gamma_y_ gamma_inf_ are not unique. It depends on

  1. size of shock(s) in the shocks block
  2. number of shocks in the shocks block
  3. optim_weights, etc.

Like it depends on some condition. Perhaps, that is how we should present osr results? For example:

  1. gammax0 = 1 if we have only preference shock in the model
  2. gammax0 = 2 if we have only AS shock in the model
  3. gammax0 = 3 if we have only monetary policy shock in the model
2

I am not sure I understand the question. Different shocks will of course cause different tradeoffs. If the occur in isolation you can react differently to them. After all, the Taylor rule is just one instrument (the policy rate) and typically you are addressing more than one objective. See the literature on the divine coincidence in the New Keynesian model. If there is only a demand shock, we know the central bank can simultaneously close the output gap and keep price dispersion at 0. That will not work with a supply shock.

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4

Thanks! I just also read (Stéphane Adjemian, Matthieu Darracq Pariès, and Stéphane Moyen), where they show that optimal rules depend on the structure of the shocks in the model.

They mention that there is “the need to derive optimal simple interest rate rules which are robust to the structure of economic shocks.”…but I guess there is currently no known way to do that in the literature.