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Interest Rate Control Rules and Macroeconomic Stability in a Heterogeneous Two-Country Model

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  • Fujisaki, Seiya
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    Abstract

    We analyze relations between several types of interest rate control rules and equilibrium determinacy using a two-country model featuring preference and production parameters that may differ between countries, in which two kinds of goods are tradable. Such heterogeneity may violate the Taylor principle, which implies that aggressive monetary policy is desirable to attain determinate equilibrium. We evaluate the forms of interest rate control needed to attain macroeconomic stability in consideration of the heterogeneity.

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    File URL: http://mpra.ub.uni-muenchen.de/37017/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37017.

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    Date of creation: 01 Mar 2012
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    Handle: RePEc:pra:mprapa:37017

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    Keywords: heterogeneity; Taylor rule; open economy; equilibrium determinacy;

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    1. Campbell Leith & Simon Wren-Lewis, 2002. "Taylor Rules in the Open Economy," Discussion Papers, Exeter University, Department of Economics 0203, Exeter University, Department of Economics.
    2. Stephen McKnight & Alexander Mihailov, 2007. "Re-examining the Importance of Trade Openness for Aggregate Instability," Economic Analysis Research Group Working Papers, Henley Business School, Reading University earg-wp2007-12, Henley Business School, Reading University.
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    6. Marco Airaudo & Luis-Felipe Zanna, 2004. "Endogenous Fluctuations in Open Economies: The Perils of Taylor Rules Revisited," Money Macro and Finance (MMF) Research Group Conference 2004, Money Macro and Finance Research Group 6, Money Macro and Finance Research Group.
    7. Stephen McKnight, 2011. "Investment and interest rate policy in the open economy," Serie documentos de trabajo del Centro de Estudios Económicos, El Colegio de México, Centro de Estudios Económicos 2011-02, El Colegio de México, Centro de Estudios Económicos.
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    22. repec:ebl:ecbull:v:5:y:2007:i:11:p:1-7 is not listed on IDEAS
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    Cited by:
    1. Fujisaki, Seiya, 2013. "Taylor rules and equilibrium determinacy in a two-country model with non-traded goods," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 597-603.
    2. Seiya Fujisaki, 2012. "Economic Stability and Interest-Rate Controls in an Open-Economy Model with Productive Money," Economics Bulletin, AccessEcon, vol. 32(4), pages 3053-3060.

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