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Investment, Interest Rate Rules, and Equilibrium Determinacy

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  • Qinglai Meng
  • Chong K. Yip

Abstract

By adding endogenous investment to a flexible-price, money-in-the-utility-function model, this paper studies the role that physical capital plays in stabilizing the real side of the economy when the monetary authority follows interest-rate feedback rules. We show that with inelastic labor supply equilibrium uniqueness is ensured under both active and passive monetary policies. For the case where money affects both preferences and technology, the uniqueness result remains true under active monetary policy. With endogenous labor supply, the uniqueness result holds again regardless of the stance of monetary policies for the case with separable leisure, but indeterminacy remains likely under both active and passive monetary policies when leisure is nonseparable. Copyright Springer-Verlag Berlin/Heidelberg 2004

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Bibliographic Info

Paper provided by Chinese University of Hong Kong, Department of Economics in its series Departmental Working Papers with number _138.

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Date of creation: Jan 2002
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Handle: RePEc:chk:cuhked:_138

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Cited by:
  1. Seiya Fujisaki, 2009. "Velocity and Monetary Expansion in a Growing Economy with Interest-Rate Control," Discussion Papers in Economics and Business 09-09, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  2. Seiya Fujisaki, 2009. "Habit Formation, Interest-Rate Control and Equilibrium Determinacy," Discussion Papers in Economics and Business 09-23, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  3. Chen, Shu-hua & Shaw, Ming-fu & Lai, Ching-chong & Chang, Juin-jen, 2008. "Interest-rate rules and transitional dynamics in an endogenously growing open economy," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 54-75, February.
  4. repec:ebl:ecbull:v:5:y:2004:i:2:p:1-7 is not listed on IDEAS
  5. Yoshiyasu Ono, 2008. "Determinacy of Equilibrium under Various Phillips Curves," ISER Discussion Paper 0706, Institute of Social and Economic Research, Osaka University.

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