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Expectational stability under non-zero trend inflation

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  • Kobayashi, Teruyoshi
  • Muto, Ichiro
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    Abstract

    This study examines the expectational stability of the rational expectation equilibria(REE) under Taylor rules when trend inflation is non-zero. We find that whether or not a higher (lower) trend inflation makes the REE more (less) unstable depends largely on the data (such as contemporaneous data, forecasts and lagged data) used in the conduct of monetary policy.

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    File URL: http://mpra.ub.uni-muenchen.de/17082/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17082.

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    Date of creation: 03 Sep 2009
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    Handle: RePEc:pra:mprapa:17082

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    Related research

    Keywords: adaptive learning; E-stability; Taylor rule; trend inflation;

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    1. Kaushik Mitra & James Bullard, . "Learning About Monetary Policy Rules," Discussion Papers, Department of Economics, University of York 00/41, Department of Economics, University of York.
    2. Guido Ascari & Tiziano Ropele, 2007. "Trend Inflation, Taylor Principle and Indeterminacy," Kiel Working Papers, Kiel Institute for the World Economy 1332, Kiel Institute for the World Economy.
    3. Timothy Cogley & Argia M. Sbordone, 2008. "Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve," American Economic Review, American Economic Association, American Economic Association, vol. 98(5), pages 2101-26, December.
    4. Guido Ascari & Tiziano Ropele, 2007. "Optimal monetary policy under low trend inflation," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 647, Bank of Italy, Economic Research and International Relations Area.
    5. Sbordone, Argia M., 2007. "Inflation persistence: Alternative interpretations and policy implications," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(5), pages 1311-1339, July.
    6. Michael Kiley, 2004. "Is Moderate-To-High Inflation Inherently Unstable?," Econometric Society 2004 North American Summer Meetings, Econometric Society 193, Econometric Society.
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