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Bounded interest rate feedback rules in continuous-time

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  • d'Albis, Hippolyte
  • Augeraud-Véron, Emmanuelle
  • Hupkes, Hermen Jan

Abstract

This paper analyzes the dynamic consequences of interest rate feedback rules in a flexible-price model where money enters the utility function. Two alternative rules are considered based on past or predicted inflation rates. The main feature is to consider inflation rates that are selected over a bounded time horizon. We prove that if the Central Bank's forecast horizon is not too long, an active and forward-looking monetary policy is not destabilizing: the equilibrium trajectory is unique and monotonic. This is an advantage with respect to active and backward-looking policies that are shown to lead to a unique but fluctuating dynamic.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 39 (2014)
Issue (Month): C ()
Pages: 227-236

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Handle: RePEc:eee:dyncon:v:39:y:2014:i:c:p:227-236

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Interest rate rules; Indeterminacy; Functionnal equations;

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References

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  9. Hippolyte d'Albis & Emmanuelle Augeraud-Véron & Hermen Jan Hupkes, 2013. "Multiple Solutions in Systems of Functional Differential Equations," Documents de travail du Centre d'Economie de la Sorbonne 13007, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
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Cited by:
  1. Hippolyte d'Albis & Emmanuelle Augeraud-Véron & Hermen Jan Hupkes, 2013. "Multiple Solutions in Systems of Functional Differential Equations," Documents de travail du Centre d'Economie de la Sorbonne 13007, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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