• Add to calendar
    Bank of Finland, Rauhankatu 19 B, Helsinki

Francisco Ruge-Murcia (McGill University): Extreme events and optimal monetary policy

Co-author: Jinill Kim


This paper studies the positive and normative implication of extreme shocks for monetary policy. The analysis is based on a small-scale new Keynesian model with sticky prices and wages where shocks are drawn from asymmetric generalized extreme value (GEV) distributions. A nonlinear perturbation of the model is estimated by the simulated method of moments. Under both the Taylor and Ramsey policies, the central bank responds nonlinearly and asymmetrically to shocks. The trade-o¤ between targeting a gross in.ation rate above as insurance against extreme shocks and strict price stability is unambiguously decided in favour of strict price stability.


Research seminars organised by the Bank of Finland's research unit are held on Thursdays at 10:30–12:00 in Rauhankatu 19, 3rd floor big meeting room (unless indicated otherwise). Seminars are held in English.

Research seminars are open to all interested parties (unless indicated otherwise). Please register in advance at research(at)bof.fi by noon of the preceding day. Visitors will be escorted from Rauhankatu 19 B (Kirjasto/Library) entrance to the seminar room 10 minutes before the seminar.