Instruments of Monetary Policy
AbstractHow can a particular allocation and prices be implemented? Under what conditions does a policy deliver a unique competitive equilibrium? How many degrees of freedom there are in the determination of the policy variables, or how many are the instruments of policy? In this paper we analyze a standard dynamic general equilibrium monetary model and determine the conditions on fiscal and monetary policy under which there is single equilibrium. We first obtain that in general, when taxes are chosen in order to satisfy the government budget constraint for all prices and quantities, policy must include exogenous rules for both money supply and interest rates in order for there to be a single equilibrium. However, there are particular interest rate feedback rules, or money supply rules, that guarantee a unique equilibrium. We consider alternative fiscal policy rules and extend the analysis to environments with sticky prices. We obtain similar results for particular restrictions on the setting of prices
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Banco de Portugal, Economics and Research Department in its journal Economic Bulletin.
Volume (Year): (2004)
Issue (Month): ()
Other versions of this item:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
Please 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.:
- Adao, Bernardino & Correia, Maria Isabel Horta & Teles, Pedro, 2001.
"Gaps and Triangles,"
CEPR Discussion Papers
2668, C.E.P.R. Discussion Papers.
- Bernardino Adao & Isabel Correia & Pedro Teles, 2003. "Gaps and Triangles," Review of Economic Studies, Wiley Blackwell, vol. 70(4), pages 699-713, October.
- Bernardino Ad�o & Isabel Correia & Pedro Teles, 2003. "Gaps and Triangles," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 699-713.
- Bernardino Adao, 2000. "Gaps and Triangles," Econometric Society World Congress 2000 Contributed Papers 1904, Econometric Society.
- Bernardino Adão & Isabel Correia & Pedro Teles, 2001. "Gaps and triangles," Working Paper Series WP-01-13, Federal Reserve Bank of Chicago.
- Bernardino Adão & Isabel Horta Correia & Pedro Teles, 2001. "Gaps and Triangles," Working Papers w200102, Banco de Portugal, Economics and Research Department.
- Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062038, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (DEE-NTDD).
If references are entirely missing, you can add them using this form.