Open Mouth Operations

26 Pages Posted: 14 Feb 2018 Last revised: 29 Apr 2020

See all articles by Jeffrey R. Campbell

Jeffrey R. Campbell

University of Notre Dame; Tilburg University

Jacob Weber

University of California, Berkeley - Department of Economics

Date Written: 2018-02-05


We examine the standard New Keynesian economy’s Ramsey problem written in terms of instrument settings instead of allocations. Its standard formulation makes two instruments available: the path of current and future interest rates, and an “open mouth operation� which selects one of the many equilibria consistent with the chosen interest rates. Removing the open mouth operation by imposing a finite commitment horizon yields pathological policy advice that relies on the model's forward guidance puzzle.

Keywords: Keynesian economics, equilibrium multiplicity, monetary policy, open market operations

JEL Classification: E12, E52, E58

Suggested Citation

Campbell, Jeffrey R. and Weber, Jacob, Open Mouth Operations (2018-02-05). FRB of Chicago Working Paper No. WP-2018-3, Available at SSRN:

Jeffrey R. Campbell (Contact Author)

University of Notre Dame ( email )

United States

Tilburg University ( email )

Tilburg, 5000 LE

Jacob Weber

University of California, Berkeley - Department of Economics ( email )

Berkeley, CA
United States

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