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Price Level Determinancy and Nominal Interest Rate Pegging

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  • Benavie, Arthur
  • Froyen, Richard T

Abstract

Possible indeterminacy of the price level, when the nominal interest rate is arbitrarily set at some level, is of interest in monetary theory. This paper reexamines this issue within a stochastic macromodel, considering both a "pure" interest rate peg and an interest rate peg as the limiting form of two money supply rules. The analysis suggests that each method of achieving a complete interest rate peg constitutes a well-formulated monetary policy. Both result in a determinate price level and money supply. As far as the stochastic properties of the model are concerned, these strategies are shown to be equivalent. Copyright 1988 by Royal Economic Society.

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  • Benavie, Arthur & Froyen, Richard T, 1988. "Price Level Determinancy and Nominal Interest Rate Pegging," Oxford Economic Papers, Oxford University Press, vol. 40(4), pages 634-645, December.
    • Handle: RePEc:oup:oxecpp:v:40:y:1988:i:4:p:634-45
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    Cited by:

    1. Joseph E. Gagnon & Dale W. Henderson, 1990. "Nominal interest rate pegging under alternative expectations hypotheses," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 438-473.
    2. Carlo Monticelli, 2000. "Structural Asymmetries and the Optimal Monetary Policy Instrument of the European Central Bank," Open Economies Review, Springer, vol. 11(1), pages 49-71, January.

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