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Interest Rate Rules, Target Policies, and Endogenous Economic Growth in an Open Economy

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Abstract

This paper sets up an endogenous growth model of an open economy in which the monetary authority implements a gradualist interest-rate rule with targets for inflation and economic growth. We show that, under a passive rule, a monetary equilibrium exists and is unique; moreover, the equilibrium is locally determinate. Under an active rule, the open economy either generates multiple equilibria or does not have any equilibrium. If equilibria exist, the high-growth equilibrium is locally determinate while the low-growth equilibrium is a source. Besides these, the stabilization and growth effects of alternative target policies are also explored in this study.

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Bibliographic Info

Paper provided by Institute of Economics, Academia Sinica, Taipei, Taiwan in its series IEAS Working Paper : academic research with number 04-A004.

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Length: 26 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:sin:wpaper:04-a004

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Keywords: Nominal interest rate rules; gradualism; endogenous economic growth;

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