An 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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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number
9910R.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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, vol. 20(1), pages 83-103, February.
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