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Determinacy of Interest Rate Rules with Bond Transaction Services in a Cashless Economy

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Author Info
Marzo, Massimiliano () (Universita di Bologna)
Zagaglia, Paolo (Dept. of Economics, Stockholm University)

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Abstract

Canzoneri and Diba (2004) show that the Taylor principle is not a panacea for equilibrium determinacy in a model where bonds and money provide liquidity services to households. We consider a cashless variant of their model with two types of government bonds. One bond provides transaction services, whereas the other is used only as a store of value. We show that the Taylor principle is still sacrosant. In general, the results of Leeper (1991) are confirmed.

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Publisher Info
Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2008:7.

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Length: 28 pages
Date of creation: 11 Aug 2008
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Handle: RePEc:hhs:sunrpe:2008_0007

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Related research
Keywords: Monetary Policy; Fiscal Policy; Government Bonds; Determinacy;

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Find related papers by JEL classification:
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  1. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February. [Downloadable!] (restricted)
  2. Canzoneri, Matthew B. & Diba, Behzad T., 2005. "Interest rate rules and price determinacy: The role of transactions services of bonds," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 329-343, March. [Downloadable!] (restricted)
  3. Michael Woodford, 2007. "How Important is Money in the Conduct of Monetary Policy?," NBER Working Papers 13325, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Martin Uribe & Stephanie Schmitt-Grohe, 2001. "Optimal fiscal and monetary policy under sticky prices," Proceedings, Federal Reserve Bank of San Francisco, issue Jun. [Downloadable!]
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  5. 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. [Downloadable!] (restricted)
  6. Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad & López-Salido, J David, 2008. "Monetary and Fiscal Policy Coordination when Bonds Provide Transactions Services," CEPR Discussion Papers 6814, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February. [Downloadable!] (restricted)
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  8. Michael Woodford, 2002. "Financial market efficiency and the effectiveness of monetary policy," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 85-94. [Downloadable!]
  9. Kim, Jinill, 2000. "Constructing and estimating a realistic optimizing model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 329-359, April. [Downloadable!] (restricted)
  10. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc. [Downloadable!]
  11. Bennett T. McCallum & Edward Nelson, 1999. "Performance of Operational Policy Rules in an Estimated Semiclassical Structural Model," NBER Chapters, in: Monetary Policy Rules, pages 15-56 National Bureau of Economic Research, Inc. [Downloadable!]
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  12. Marvin Goodfriend & Robert King, 1997. "The New Neoclassical Synthesis and the Role of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 231-296 National Bureau of Economic Research, Inc. [Downloadable!]
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  13. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December. [Downloadable!] (restricted)
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