Real Balance Effects and Monetary Policy
AbstractThis article presents a dynamic stochastic new Keynesian model with real balance effects. I find a number of results that would not appear in the traditional framework. It is shown that the real balance effect makes the so-called Taylor principle not necessary for determinacy of rational expectations equilibrium and that "passive" monetary rules may be feasible. In addition, within a class of policy rules constrained to be a linear function of state variables, "active" interest rate rules are more likely to be optimal under commitment rather than under discretion. (JEL E52, E58) Copyright 2006, Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 44 (2006)
Issue (Month): 3 (July)
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- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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- Stephen McKnight & Alexander Mihailov, 2012. "Do real balance effects invalidate the Taylor principle in closed and open economies?," Serie documentos de trabajo del Centro de Estudios EconÃ³micos 2012-10, El Colegio de México, Centro de Estudios Económicos.
- Benjamin Carton, 2012. "Monetary-Policy Tradeoff in Overlapping Generations DSGE Models," DEM Working Papers Series 028, University of Pavia, Department of Economics and Management.
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- Airaudo, Marco & Nisticò, Salvatore & Zanna, Luis-Felipe, 2012. "Learning, Monetary Policy and Asset Prices," Department of Economics Working Paper Series 2012-12, LeBow College of Business, Drexel University.
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