2009 International Conference "Financial System and Monetary Policy Implementation," Keynote Speech, The Role of "Determinacy" in Monetary Policy Analysis
It is well known that the concept of "determinacy"-a single stable solution-plays a major role in contemporary monetary policy analysis. But while determinacy is desirable, other things equal, it is not necessary for a solution to be plausible and is not sufficient for a solution to be desirable. There is a related but distinct criterion of " learnability" that seems more crucial. This paper argues that recognition of information feasibility requires that a candidate solution must, to be plausible, be quantitatively learnable on the basis of information generated by the economy itself. Since a prominent least- squares (LS) learning process is highly "biased" toward learnability, it is reasonable to regard it as a necessary condition for any specific solution to be relevant. This implies that determinacy is not necessary for policy analysis; there may be more than one stable solution, but only one that is LS learnable. Also, determinacy is not sufficient for satisfactory policy analysis; explosive solutions pertaining to nominal variables will not be eliminated by transversality conditions. For these and other reasons, the role of determinacy in monetary policy analysis should be reconsidered and substantially de-emphasized.
Volume (Year): 27 (2009)
Issue (Month): 1 (November)
|Contact details of provider:|| Postal: 2-1-1 Nihonbashi, Hongoku-cho, Chuo-ku, Tokyo 103|
Web page: http://www.imes.boj.or.jp/
More information through EDIRC
References listed on IDEAS
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.:
- James B. Bullard, 2006. "The learnability criterion and monetary policy," Review, Federal Reserve Bank of St. Louis, issue May, pages 203-217.
- John H. Cochrane, 2011.
"Determinacy and Identification with Taylor Rules,"
Journal of Political Economy,
University of Chicago Press, vol. 119(3), pages 565-615.
- John H. Cochrane, 2007. "Determinacy and Identification with Taylor Rules," NBER Working Papers 13410, National Bureau of Economic Research, Inc.
- John H. Cochrane, 2007. "Determinacy and Identification with Taylor Rules," NBER Working Papers 13409, National Bureau of Economic Research, Inc.
- Carlstrom, Charles T. & Fuerst, Timothy S., 2005. "Investment and interest rate policy: a discrete time analysis," Journal of Economic Theory, Elsevier, vol. 123(1), pages 4-20, July.
- Charles T. Carlstrom & Timothy S. Fuerst, 2003. "Investment and interest rate policy: a discrete time analysis," Working Paper 0320, Federal Reserve Bank of Cleveland.
- Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
- Kaushik Mitra & James Bullard, "undated". "Learning About Monetary Policy Rules," Discussion Papers 00/41, Department of Economics, University of York.
- James B. Bullard & Kaushik Mitra, 2002. "Learning about monetary policy rules," Working Papers 2000-001, Federal Reserve Bank of St. Louis.
- Kurozumi, Takushi & Van Zandweghe, Willem, 2008. "Investment, interest rate policy, and equilibrium stability," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1489-1516, May.
- Evans, George W. & Honkapohja, Seppo, 1999. "Learning dynamics," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 7, pages 449-542 Elsevier. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ime:imemes:v:27:y:2009:i:1:p:25-34. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kinken)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.