Timing and real indeterminacy in monetary models
AbstractAn increasingly common approach to the theoretical analysis of monetary policy ensures that a proposed policy does not introduce real indeterminacy—and thus sunspot fluctuations—into the model economy. Policy is typically conducted in terms of directives for the nominal interest rate. This paper uses a discrete-time, money-in-the-utility function model to demonstrate how seemingly minor modifications in the trading environment result in dramatic differences in the policy restrictions needed to ensure real determinacy. These differences arise because of the differing pricing equations for the nominal interest rate.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 9910R.
Date of creation: 2001
Date of revision:
Other versions of this item:
- NEP-ALL-1999-11-28 (All new papers)
- NEP-DGE-1999-11-28 (Dynamic General Equilibrium)
- NEP-MON-1999-11-28 (Monetary Economics)
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