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Active and Passive Monetary Policy in an Overlapping Generations Model

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  • Gerhard Sorger

    (University of Vienna)

Abstract

In a standard overlapping generations model, active monetary policy reinforces mechanisms that lead to equilibrium indeterminacy and to countercyclical behavior of young-age consumption. The policy rule which minimizes inflation volatility can be active or passive, depending on the characteristics of shocks and the risk aversion of households. Inflation forecast errors are always greater under active inflation forecast targeting than under passive inflation forecast targeting or strict money growth targeting. Indeterminacy is more likely under an active forwardlooking rule than under the corresponding backward-looking rule, but backward-looking rules can render the monetary steady state unstable. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 8 (2005)
Issue (Month): 3 (July)
Pages: 731-748

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Handle: RePEc:red:issued:v:8:y:2005:i:3:p:731-748

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Related research

Keywords: Monetary policy rules; indeterminacy; business cycles;

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References

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Cited by:
  1. Lise Clain-Chamosset-Yvrard & Thomas Seegmuller, 2013. "The Stabilizing Virtues of Fiscal vs. Monetary Policy on Endogenous Bubble Fluctuations," Working Papers, HAL halshs-00854536, HAL.
  2. Thomas Seegmuller & Lise Clain-Chamosset-Yvrard, 2013. "The Stabilizing Virtues of Fiscal vs. Monetary Policy on Endogenous Bubble Fluctuations," AMSE Working Papers 1343, Aix-Marseille School of Economics, Marseille, France, revised 17 Aug 2013.
  3. Lise Clain-Chamosset-Yvrard & Thomas Seegmuller, 2013. "Rational Bubbles and Macroeconomic Fluctuations: The (De-)Stabilizing Role of Monetary Policy," Working Papers, HAL halshs-00793063, HAL.
  4. von Thadden, Leopold, 2012. "Monetary policy rules in an OLG model with non-superneutral money," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(1), pages 147-166.

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