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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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    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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    19. Chen, Shu-hua & Shaw, Ming-fu & Lai, Ching-chong & Chang, Juin-jen, 2008. "Interest-rate rules and transitional dynamics in an endogenously growing open economy," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 54-75, February.
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    Cited by:
    1. 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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