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Money supply, macroeconomic stability, and the implementation of interest rate targets

  • Schabert, Andreas

In this paper the relation between interest rate targets and money supply is analysed in a standard macroeconomic framework with frictionless financial markets and sticky prices. Money supplies are examined that implement equilibrium sequences satisfying forward-looking interest rate targets. An interest rate target with a positive inflation feedback in general corresponds to an accommodating money supply, i.e., money growth rates rising with inflation. It is shown that interest rate targets (like a Taylor-rule), which are consistent with a unique equilibrium, cannot be implemented by money growth rules.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 31 (2009)
Issue (Month): 2 (June)
Pages: 333-344

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Handle: RePEc:eee:jmacro:v:31:y:2009:i:2:p:333-344
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  7. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
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  18. Chowdhury, Ibrahim & Schabert, Andreas, 2008. "Federal reserve policy viewed through a money supply lens," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 825-834, May.
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