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Money supply, macroeconomic stability, and the implementation of interest rate targets

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  • Schabert, Andreas

Abstract

In this paper the relation between interest rate targets and money supply is analysed in a standard macroeconomic framework with frictionless financial markets and sticky prices. Money supplies are examined that implement equilibrium sequences satisfying forward-looking interest rate targets. An interest rate target with a positive inflation feedback in general corresponds to an accommodating money supply, i.e., money growth rates rising with inflation. It is shown that interest rate targets (like a Taylor-rule), which are consistent with a unique equilibrium, cannot be implemented by money growth rules.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 31 (2009)
Issue (Month): 2 (June)
Pages: 333-344

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Handle: RePEc:eee:jmacro:v:31:y:2009:i:2:p:333-344

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Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: Interest rate targets Money supply Money growth rates Equilibrium determinacy Policy equivalence;

References

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