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Monetary policy with single instrument feedback rules

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  • Bernardino Adão
  • Isabel Correia
  • Pedro Teles

Abstract

We consider a standard cash in advance monetary model with flexible prices or prices set in advance and show that there are interest rate or money supply rules such that equilibria are unique. The existence of these single instrument rules depends on whether the economy has an infinite horizon or an arbitrarily large but finite horizon.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-04-30.

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Date of creation: 2004
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Handle: RePEc:fip:fedhwp:wp-04-30

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Keywords: Monetary policy ; Prices;

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References

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  1. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  2. Bernardino Adão & Isabel Horta Correia & Pedro Teles, 2004. "Monetary Policy with State Contingent Interest Rates," Working Papers w200418, Banco de Portugal, Economics and Research Department.
  3. Gaetano Bloise & Jacques Dréze & Herakles Polemarchakis, 2005. "Monetary equilibria over an infinite horizon," Economic Theory, Springer, vol. 25(1), pages 51-74, 01.
  4. Benhabib, Jess & Schmitt-Grohé, Stephanie & Uribe, Martín, 1999. "Monetary Policy and Multiple Equilibria," CEPR Discussion Papers 2316, C.E.P.R. Discussion Papers.
  5. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  6. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
  7. Bernardino Adao, 2000. "Gaps and Triangles," Econometric Society World Congress 2000 Contributed Papers 1904, Econometric Society.
  8. Charles T. Carlstrom & Timothy S. Fuerst, 2001. "Taylor rules in a model that satisfies the natural rate hypothesis," Working Paper 0116, Federal Reserve Bank of Cleveland.
  9. Ben S. Bernanke & Michael Woodford, 1997. "Inflation forecasts and monetary policy," Proceedings, Federal Reserve Bank of Cleveland, pages 653-686.
  10. Bernardino Ad�o & Isabel Correia & Pedro Teles, 2003. "Gaps and Triangles," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 699-713.
  11. Dupor, Bill, 2001. "Investment and Interest Rate Policy," Journal of Economic Theory, Elsevier, vol. 98(1), pages 85-113, May.
  12. McCallum, Bennett T., 1981. "Price level determinacy with an interest rate policy rule and rational expectations," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 319-329.
  13. Lawrence J. Christiano & Massimo Rostagno, 2001. "Money Growth Monitoring and the Taylor Rule," NBER Working Papers 8539, National Bureau of Economic Research, Inc.
  14. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
  15. Charles T. Carlstrom & Timothy S. Fuerst, 2001. "Timing and real indeterminacy in monetary models," Working Paper 9910R, Federal Reserve Bank of Cleveland.
  16. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  17. Benhabib, Jess & Schmitt-Grohe, Stephanie & Uribe, Martin, 2001. "The Perils of Taylor Rules," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 40-69, January.
  18. Tomoyuki Nakajima & Herakles Polemarchakis, 2005. "Money and Prices Under Uncertainty," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 223-246.
  19. Marco Bassetto, 2004. "Negative Nominal Interest Rates," American Economic Review, American Economic Association, vol. 94(2), pages 104-108, May.
  20. Loisel, O., 2006. "Bubble-free interest-rate rules," Working papers 161, Banque de France.
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Citations

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Cited by:
  1. Corsetti, Giancarlo & Pesenti, Paolo, 2005. "The Simple Geometry of Transmission and Stabilization in Closed and Open Economies," CEPR Discussion Papers 5080, C.E.P.R. Discussion Papers.
  2. Andrew Atkeson & V. V. Chari & Patrick Kehoe, 2009. "Sophisticated Monetary Policies," NBER Working Papers 14883, National Bureau of Economic Research, Inc.
  3. Andrew Atkeson & V. V. Chari & Patrick J. Kehoe, 2007. "On the optimal choice of a monetary policy instrument," Staff Report 394, Federal Reserve Bank of Minneapolis.
  4. Loisel, O., 2006. "Bubble-free interest-rate rules," Working papers 161, Banque de France.
  5. Giancarlo Corsetti, 2008. "A Modern Reconsideration of the Theory of Optimal Currency Areas," Economics Working Papers ECO2008/12, European University Institute.

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