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Monetary policy and stable indeterminacy with inertia

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  • Evans, George W.
  • McGough, Bruce

Abstract

We examine existence and stability under learning of sunspot equilibria in a New Keynesian model incorporating inertia. Indeterminacy remains prevalent, stable sunspots abound, and inertia in IS and AS relations do not significantly impact the policy region containing stable sunspots.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 87 (2005)
Issue (Month): 1 (April)
Pages: 1-7

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Handle: RePEc:eee:ecolet:v:87:y:2005:i:1:p:1-7

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References

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  1. Honkapohja, Seppo & Mitra, Kaushik, 2004. "Are non-fundamental equilibria learnable in models of monetary policy?," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1743-1770, November.
  2. Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
  3. Williams, John C. & Levin, Andrew T. & Wieland, Volker, 2001. "The performance of forecast-based monetary policy rules under model uncertainty," Working Paper Series 0068, European Central Bank.
  4. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  5. Michael Woodford, 1999. "Optimal monetary policy inertia," Proceedings, Federal Reserve Bank of San Francisco.
  6. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
  7. Evans George W. & Honkapohja Seppo, 1994. "On the Local Stability of Sunspot Equilibria under Adaptive Learning Rules," Journal of Economic Theory, Elsevier, vol. 64(1), pages 142-161, October.
  8. Kaushik Mitra & James Bullard, . "Learning About Monetary Policy Rules," Discussion Papers 00/41, Department of Economics, University of York.
  9. George W. Evans & Seppo Honkapohja, 2002. "Existence of Adaptively Stable Sunspot Equilibria near an Indeterminate Steady State," University of Oregon Economics Department Working Papers 2002-9, University of Oregon Economics Department, revised 06 Apr 2002.
  10. Bernanke, Ben S & Woodford, Michael, 1997. "Inflation Forecasts and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 653-84, November.
  11. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
  12. Charles T. Carlstrom & Timothy S. Fuerst, 2001. "Learning and the central bank," Working Paper 0117, Federal Reserve Bank of Cleveland.
  13. Evans George W & McGough Bruce, 2005. "Indeterminacy and the Stability Puzzle in Non-Convex Economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-46, September.
  14. Woodford, Michael, 1990. "Learning to Believe in Sunspots," Econometrica, Econometric Society, vol. 58(2), pages 277-307, March.
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Cited by:
  1. Bask, Mikael & Proaño, Christian R, 2012. "Optimal Monetary Policy under Learning in a New Keynesian Model with Cost Channel and Inflation Inertia," Working Paper Series 2012:7, Uppsala University, Department of Economics.
  2. Branch, William A. & McGough, Bruce, 2010. "Dynamic predictor selection in a new Keynesian model with heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1492-1508, August.
  3. Eran Guse, 2007. "Learning in a Misspecified Multivariate Self-Referential Linear Stochastic Model," Money Macro and Finance (MMF) Research Group Conference 2006 71, Money Macro and Finance Research Group.
  4. Loisel, O., 2006. "Bubble-free interest-rate rules," Working papers 161, Banque de France.
  5. Marco Ratto, 2008. "Analysing DSGE Models with Global Sensitivity Analysis," Computational Economics, Society for Computational Economics, vol. 31(2), pages 115-139, March.
  6. Gasteiger, Emanuel, 2011. "Heterogeneous expectations, Taylor rules and the merit of monetary policy inertia," MPRA Paper 31004, University Library of Munich, Germany.

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