Monetary policy as equilibrium selection
Abstract
Can monetary policy guide expectations toward desirable outcomes when equilibrium and welfare are sensitive to alternative, commonly held rational beliefs? This paper studies this question in an exchange economy with endogenous debt limits in which dynamic complementarities between dated debt limits support two Pareto-ranked steady states: a suboptimal, locally stable autarkic state and a constrained optimal, locally unstable trading state. The authors identify feedback policies that reverse the stability properties of the two steady states and ensure rapid convergence to the constrained optimal state.Download Info
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Article provided by Federal Reserve Bank of St. Louis in its journal Review.
Volume (Year): (2007)
Issue (Month): Jul ()
Pages: 331-342
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Keywords: Monetary policy ; Equilibrium (Economics);References
References listed on IDEASPlease report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- James Bullard & Costas Azariadis & Gaetano Antinolfi, 2008.
"The Optimal Inflation Target in an Economy with Limited Enforcement,"
2008 Meeting Papers
915, Society for Economic Dynamics.
- James Bullard & Gaetano Antinolfi & Costas Azariadis, 2008. "The optimal inflation target in an economy with limited enforcement," Speech, Federal Reserve Bank of St. Louis, issue Oct 2.
- James Bullard & Gaetano Antinolfi & Costas Azariadis, 2008. "The optimal inflation target in an economy with limited enforcement," Speech, Federal Reserve Bank of St. Louis, issue Oct 10.
- Gaetano Antinolfi & Costas Azariadis & James B. Bullard, 2007. "The optimal inflation target in an economy with limited enforcement," Working Papers 2007-037, Federal Reserve Bank of St. Louis.
- Gaetano Antinolfi & Costas Azariadis & James Bullard, 2012. "The optimal inflation target in an economy with limited enforcement," Working Papers 2012-044, Federal Reserve Bank of St. Louis.
- Bidian, Florin & Bejan, Camelia, 2011. "Martingale properties of self-enforcing debt," MPRA Paper 36609, University Library of Munich, Germany, revised 12 Feb 2012.
- Gaetano Bloise & Pietro Reichlin & Mario Tirelli, 2013. "Fragility of Competitive Equilibrium with Risk of Default," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 271-295, April.
- Bejan, Camelia & Bidian, Florin, 2010. "Limited enforcement, bubbles and trading in incomplete markets," MPRA Paper 36819, University Library of Munich, Germany, revised 20 Feb 2012.
- Patrick A. Pintus, 2008. "Laffer traps and monetary policy," Review, Federal Reserve Bank of St. Louis, issue May, pages 165-174.
- Peter N. Ireland, 2007. "Commentary on "Monetary policy as equilibrium selection"," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 343-348.
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