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Money Growth Rules and Price Level Determinacy

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  • Charles T. Carlstrom

    (Federal Reserve Bank of Cleveland)

  • Timothy S. Fuerst

    (Bowling Green State University)

Abstract

Do exogenous money growth rules produce price level determinacy? This is a classic topic in monetary theory. This paper contributes to this literature by examining the effect of money demand timing. The paper demonstrates how conditions for determinacy vary depneding upon whether the theoretical model uses 'cash-in-advance' timing or 'cash-when-I'm-done' timing. This issue is addressed in an endowment economy and a standard production economy. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/S1094-2025(03)00010-3
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 6 (2003)
Issue (Month): 2 (April)
Pages: 263-275

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Handle: RePEc:red:issued:v:6:y:2003:i:2:p:263-275

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References

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  1. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, American Economic Association, vol. 79(4), pages 733-48, September.
  2. Michener, Ronald & Ravikumar, B., 1998. "Chaotic dynamics in a cash-in-advance economy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 22(7), pages 1117-1137, May.
  3. Calvo, Guillermo A, 1979. "On Models of Money and Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(1), pages 83-103, February.
  4. Benhabib, J. & Schmitt-Grohe, S. & Uribe, M., 1998. "Monetary Policy and Multiple Equilibria," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-02, C.V. Starr Center for Applied Economics, New York University.
  5. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, Springer, vol. 4(3), pages 345-80.
  6. Obstfeld, Maurice & Rogoff, Kenneth, 1986. "Ruling out divergent speculative bubbles," Journal of Monetary Economics, Elsevier, Elsevier, vol. 17(3), pages 349-362, May.
  7. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(4), pages 675-87, August.
  8. Kiminori Matsuyama, 1988. "Endogenous Price Fluctuations in an Optimizing Model of a Monetary Economy," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 813, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, Elsevier, vol. 17(2), pages 271-291, March.
  10. Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 2, volume 1, number 0262062038, December.
  11. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, Elsevier, vol. 25(3), pages 380-396, December.
  12. Charles T. Carlstrom & Timothy S. Fuerst, 2001. "Real Indeterminacy in Monetary Models with Nominal Interest Rate Distortions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(4), pages 767-789, October.
  13. Robert E. Lucas Jr. & Nancy L. Stokey, 1984. "Money and Interest in Cash-In-Advance Economy," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Carlstrom, Charles T. & Fuerst, Timothy S., 2001. "Timing and real indeterminacy in monetary models," Journal of Monetary Economics, Elsevier, Elsevier, vol. 47(2), pages 285-298, April.
  15. Matsuyama, Kiminori, 1990. "Sunspot equilibria (rational bubbles) in a model of money-in-the-utility-function," Journal of Monetary Economics, Elsevier, Elsevier, vol. 25(1), pages 137-144, January.
  16. Charles T. Carlstrom & Timothy S. Fuerst, 2000. "Forward-looking versus backward-looking Taylor rules," Working Paper, Federal Reserve Bank of Cleveland 0009, Federal Reserve Bank of Cleveland.
  17. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(5), pages 919-44, October.
  19. Fukuda, Shin-ichi, 1993. "The emergence of equilibrium cycles in a monetary economy with a separable utility function," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(2), pages 321-334, November.
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