Nominal interest rate pegging under alternative expectations hypotheses
Nominal interest rate pegging leads to instability in an IS-LM model with a vertical long-run Phillips curve and backward-looking inflation expectations. However, it does not lead to instability in several large multicountry econometric models, primarily because these models have nonvertical long-run Phillips curves. Nominal interest rate pegging leads to price level and output indeterminacy in a model with staggered contracts and rational expectations. However, when a class of money supply rules with interest rate smoothing is introduced, and interest rate pegging is viewed as the limit of interest rate smoothing, the price level and output are determinate.
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Volume (Year): (1990)
Issue (Month): ()
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- Bennett T. McCallum, 1980.
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NBER Working Papers
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- repec:nbr:nberre:0126 is not listed on IDEAS
- Reinhart, Vincent, 1990. "Interest rate smoothing and staggered contracting," Journal of Economics and Business, Elsevier, vol. 42(1), pages 1-16, February.
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- Matthew B. Canzoneri & Dale W. Henderson & Kenneth S. Rogoff, 1981. "The information content of the interest rate and optimal monetary policy," International Finance Discussion Papers 192, Board of Governors of the Federal Reserve System (U.S.).
- Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
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