Evaluating alternative monetary policy rules

This paper examines monetary policy from an optimal control perspective. Five loss functions are minimized for each of five models, and the results are compared. The basic ('true') loss function targets inflation and unemployment. The other loss functions target, respectively, inflation alone, unemployment alone, nominal growth alone, and real growth alone. The five models are two small structural models, two VAR models, and a large structural model. A numerical procedure is presented that can handle a variety of loss functions and models.