Price Indeterminacy Reinvented: Pegging Interest Rates While Targeting Prices, Inflation, or Nominal Income
AbstractContrary to Sargent and Wallace (1975), a central bank’s use of an interest-rate instrument does determine prices when the central bank pursues either a short-term or long-term price target. However, in order for a central bank’s pursuit of a long-term price target to be credible, the public still needs something like a Taylor or McCallum-Woodford rule. The use of an interest-rate instrument also determines prices when the central bank targets nominal income in either the short-term or long-term. However, if the central bank targets interest rates in the short term with a long-term inflation target, then prices are indeterminate.
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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0501028.
Length: 30 pages
Date of creation: 20 Jan 2005
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price indeterminancy; pegging interest rates; inflation targeting; nominal-income targeting; nominal-aggregate-demand targeting; price-level targeting;
Find related papers by JEL classification:
- E - Macroeconomics and Monetary Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-23 (All new papers)
- NEP-CBA-2005-01-23 (Central Banking)
- NEP-MAC-2005-01-23 (Macroeconomics)
- NEP-MON-2005-01-23 (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.:
- Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
- Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
- David Eagle, 2005. "The Inflation Dynamics of Pegging Interest Rates," Macroeconomics 0502029, EconWPA.
- David Eagle, 2005. "Multiple Critiques of Woodford’s Model of a Cashless Economy," Macroeconomics 0504028, EconWPA.
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