Real Indeterminacy and the Timing of Money in Open Economies
AbstractThis paper investigates the conditions under which interest-rate rules induce real equilibrium indeterminacy in a two-country, sticky-price, monetary model. Using a discrete-time framework, we employ the two most commonly used timing assumptions on which money balances enter into the utility function. This paper shows that the tim- ing equivalence result derived for a closed-economy no longer holds for open economies. This arises because modifications in the trading environment impact on the behavior of the real exchange rate. Consequently this helps explain the seemingly contradictory findings in the literature on real indeterminacy in open economies. Furthermore it challenges the belief that domestic inflation targeting is superior to consumer price inflation targeting, in minimizing aggregate instability.
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Bibliographic InfoPaper provided by Henley Business School, Reading University in its series Economic Analysis Research Group Working Papers with number earg-wp2007-09.
Length: 31 pages
Date of creation: 2007
Date of revision:
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More information through EDIRC
Real indeterminacy; Open economy macroeconomics; Interest rate rules; Monetary Policy;
Other versions of this item:
- Stephen McKnight, 2007. "Real Indeterminacy and the Timing of Money in Open Economies," Economics & Management Discussion Papers em-dp2007-46, Henley Business School, Reading University.
- Stephen McKnight, 2011. "Real indeterminacy and the timing of money in open economies," Serie documentos de trabajo del Centro de Estudios EconÃ³micos 2011-01, El Colegio de México, Centro de Estudios Económicos.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-02 (All new papers)
- NEP-CBA-2008-02-02 (Central Banking)
- NEP-MAC-2008-02-02 (Macroeconomics)
- NEP-MON-2008-02-02 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- De Fiore, Fiorella & Liu, Zheng, 2005. "Does trade openness matter for aggregate instability?," Journal of Economic Dynamics and Control, Elsevier, vol. 29(7), pages 1165-1192, July.
- Stephen McKnight, 2011.
"Investment and interest rate policy in the open economy,"
Serie documentos de trabajo del Centro de Estudios EconÃ³micos
2011-02, El Colegio de México, Centro de Estudios Económicos.
- Stephen McKnight, 2011. "Investment and interest rate policy in the open economy," Oxford Economic Papers, Oxford University Press, vol. 63(4), pages 673-699, December.
- Stephen McKnight, 2007. "Investment and Interest Rate Policy in the Open Economy," Economic Analysis Research Group Working Papers earg-wp2007-11, Henley Business School, Reading University.
- Fujisaki, Seiya, 2012. "Taylor rules and equilibrium determinacy in a two-country model with non-traded goods," MPRA Paper 40023, University Library of Munich, Germany.
- Fujisaki, Seiya, 2012. "Interest Rate Control Rules and Macroeconomic Stability in a Heterogeneous Two-Country Model," MPRA Paper 37017, University Library of Munich, Germany.
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