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Interest Rate Rules and Macroeconomic Stabilization

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  • Mark Weder

    () (School of Economics, University of Adelaide)

Abstract

High degrees of relative risk aversion induce indeterminacy in cash-in-advance economies. This paper finds that Taylor-style policies can pre-empt such sunspot equilibria. Specific policy recommendations depend on the fundamentals of the economy, i.e. the empirically true value of coecient of relative risk aversion.

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File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2006-01.pdf
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Bibliographic Info

Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2006-01.

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Length: 11 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:adl:wpaper:2006-01

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Postal: Adelaide SA 5005
Phone: (618) 8303 5540
Web page: http://www.economics.adelaide.edu.au/
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Keywords: cash-in-advance economies; Taylor rules; sunspot equilibria;

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  1. Weder, Mark, 2003. "Taylor Rules and Macroeconomic Instability or How the Central Bank Can Pre-empt Sunspot Expectations," SFB 373 Discussion Papers 2003,49, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 2003. "Backward-Looking Interest-Rate Rules, Interest-Rate Smoothing, and Macroeconomic Instability," Departmental Working Papers 200304, Rutgers University, Department of Economics.
  3. Marc P. Giannoni & Michael Woodford, 2003. "Optimal Interest-Rate Rules: II. Applications," NBER Working Papers 9420, National Bureau of Economic Research, Inc.
  4. Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062038.
  5. Charles T. Carlstrom & Timothy S. Fuerst, 2000. "Forward-looking versus backward-looking Taylor rules," Working Paper 0009, Federal Reserve Bank of Cleveland.
  6. Charles T. Carlstrom & Timothy J. Fuerst, 1999. "Forecasts and sunspots: looking back for a better future," Economic Commentary, Federal Reserve Bank of Cleveland, issue Nov.
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