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CRIEFF Discussion Paper Number 1101

On Measuring the Efficiency of Monetary Policy

Walter Briec (Universite de Perpignan), Emmanuelle Gabillon (Universite Montesquieu), Laurence Lasselle (University of St. Andrews) and Hermann Ratsimbanierana (Universite de Perpignan).

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Abstract

Abstract: Cecchetti et al. (2006) develop a method for allocating macroeconomic performance changes among the structure of the economy, variability of supply shocks and monetary policy. We propose a dual approach of their method by borrowing well-known tools from production theory, namely the Farrell measure and the Malmquist index. Following Färe et al (1994) we propose a decomposition of the efficiency of monetary policy. It is shown that the global efficiency changes can be rewritten as the product of the changes in macroeconomic performance, minimum quadratic loss, and efficiency frontier.

JEL codes: E52, E58

Keywords: efficiency frontier, inflation variability, Farrell measure, Malmquist index

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