IDEAS home Printed from https://ideas.repec.org/a/red/issued/09-172.html
   My bibliography  Save this article

Unique Monetary Equilibria with Interest Rate Rules

Author

Listed:
  • Bernardino Adao

    (Banco de Portugal)

  • Isabel Correia

    (Banco de Portugal)

  • Pedro Teles

    (Banco de Portugal)

Abstract

In contrast to previous literature, we show that it is possible to use interest rate rules in standard monetary models to implement equilibria that are globally unique. This is a contribution to a literature that either concentrates on conditions for local determinacy, or criticizes that approach showing that local determinacy might be associated with global indeterminacy. The interest rate rules we propose are price level targeting rules that respond to the forecasts of the future price level and future economic activity. (Copyright: Elsevier)

Suggested Citation

  • Bernardino Adao & Isabel Correia & Pedro Teles, 2011. "Unique Monetary Equilibria with Interest Rate Rules," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 432-442, July.
  • Handle: RePEc:red:issued:09-172
    DOI: 10.1016/j.red.2009.11.003
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1016/j.red.2009.11.003
    Download Restriction: Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. John H. Cochrane, 2011. "Determinacy and Identification with Taylor Rules," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 565-615.
    2. Andrew Atkeson & Varadarajan V. Chari & Patrick J. Kehoe, 2010. "Sophisticated Monetary Policies," The Quarterly Journal of Economics, Oxford University Press, vol. 125(1), pages 47-89.
    3. Adão, Bernardino & Correia, Isabel & Teles, Pedro, 2014. "Short and long interest rate targets," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 95-107.
    4. Lawrence J. Christiano & Massimo Rostagno, 2001. "Money Growth Monitoring and the Taylor Rule," NBER Working Papers 8539, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Adão, Bernardino & Correia, Isabel & Teles, Pedro, 2014. "Short and long interest rate targets," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 95-107.
    2. Jeffrey Campbell & Jacob Weber, . "Discretion rather than rules: Equilibrium uniqueness and forward guidance with inconsistent optimal plans," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    3. Mengus, Eric & Barthelemy, Jean, 2017. "Monetary Rules, Determinacy and Limited Enforcement," HEC Research Papers Series 1202, HEC Paris, revised 11 May 2019.
    4. John H. Cochrane, 2011. "Determinacy and Identification with Taylor Rules," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 565-615.
    5. Correia, Isabel & De Fiore, Fiorella & Teles, Pedro & Tristani, Oreste, 2014. "Credit Spreads and Credit Policies," CEPR Discussion Papers 9989, C.E.P.R. Discussion Papers.
    6. Dixon, Huw & Pourpourides, Panayiotis M., 2016. "On imperfect competition with occasionally binding cash-in-advance constraints," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 72-85.
    7. Isabel Correia & Emmanuel Farhi & Juan Pablo Nicolini & Pedro Teles, 2013. "Unconventional Fiscal Policy at the Zero Bound," American Economic Review, American Economic Association, vol. 103(4), pages 1172-1211, June.
    8. Robert E. Hall & Ricardo Reis, 2016. "Achieving Price Stability by Manipulating the Central Bank's Payment on Reserves," Discussion Papers 1634, Centre for Macroeconomics (CFM).
    9. Canzoneri, Matthew & Cumby, Robert & Diba, Behzad, 2010. "The Interaction Between Monetary and Fiscal Policy," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 17, pages 935-999, Elsevier.
    10. Huberto M. Ennis, 2015. "Discussion on \"Scarcity of Safe Assets, Inflation, and the Policy Trap\" by Andolfatto and Williamson," Working Paper 15-3, Federal Reserve Bank of Richmond.
    11. Kimbrough, Kent P., 2012. "Unique monetary equilibria with interest rate rules: An extension," Economics Letters, Elsevier, vol. 114(3), pages 332-334.
    12. Diba, Behzad & Loisel, Olivier, 2021. "Pegging the interest rate on bank reserves: A resolution of New Keynesian puzzles and paradoxes," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 230-244.
    13. Blake, Andrew P., 2012. "Equally shocking news," Economics Letters, Elsevier, vol. 117(3), pages 866-869.
    14. Sofia Bauducco & Rodrigo Caputo, 2020. "Wicksellian Rules and the Taylor Principle: Some Practical Implications," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(1), pages 340-368, January.
    15. Narayana R. Kocherlakota, 2020. "21st Century Macro," NBER Working Papers 26791, National Bureau of Economic Research, Inc.
    16. Adão, Bernardino & Silva, André C., 2020. "The effect of firm cash holdings on monetary policy," European Economic Review, Elsevier, vol. 128(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jeffrey Campbell & Jacob Weber, . "Discretion rather than rules: Equilibrium uniqueness and forward guidance with inconsistent optimal plans," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    2. Olivier Loisel, 2013. "The Implementation of Stabilization Policy," Working Papers 2013-24, Center for Research in Economics and Statistics.
    3. Mengus, Eric & Barthelemy, Jean, 2017. "Monetary Rules, Determinacy and Limited Enforcement," HEC Research Papers Series 1202, HEC Paris, revised 11 May 2019.
    4. Magill, Michael & Quinzii, Martine, 2014. "Anchoring expectations of inflation," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 86-105.
    5. Fernando M. Duarte & Anna Zabai, 2015. "An interest rate rule to uniquely implement the optimal equilibrium in a liquidity trap," Staff Reports 745, Federal Reserve Bank of New York.
    6. Cochrane, John H., 2017. "The new-Keynesian liquidity trap," Journal of Monetary Economics, Elsevier, vol. 92(C), pages 47-63.
    7. Bassetto, Marco & Phelan, Christopher, 2015. "Speculative runs on interest rate pegs," Journal of Monetary Economics, Elsevier, vol. 73(C), pages 99-114.
    8. Michael Kiley, 2016. "Policy Paradoxes in the New-Keynesian Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 21, pages 1-15, July.
    9. Fernando M. Duarte, 2016. "How to escape a liquidity trap with interest rate rules," Staff Reports 776, Federal Reserve Bank of New York.
    10. Kocherlakota, N., 2012. "Central bank independence and sovereign default," Financial Stability Review, Banque de France, issue 16, pages 151-154, April.
    11. Karel R. S. M. Mertens & Morten O. Ravn, 2014. "Fiscal Policy in an Expectations-Driven Liquidity Trap," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1637-1667.
    12. Franz Seitz & Markus A. Schmidt, 2014. "Money In Modern Macro Models: A Review of the Arguments," Journal of Reviews on Global Economics, Lifescience Global, vol. 3, pages 156-174.
    13. Rostagno, Massimo & Altavilla, Carlo & Carboni, Giacomo & Lemke, Wolfgang & Motto, Roberto & Saint Guilhem, Arthur & Yiangou, Jonathan, 2019. "A tale of two decades: the ECB’s monetary policy at 20," Working Paper Series 2346, European Central Bank.
    14. Ayse Kabukcuoglu & Enrique Martínez-García, 2016. "What Helps Forecast U.S. Inflation?—Mind the Gap!," Koç University-TUSIAD Economic Research Forum Working Papers 1615, Koc University-TUSIAD Economic Research Forum.
    15. Minford, Patrick & Srinivasan, Naveen, 2011. "Ruling out unstable equilibria in New Keynesian models," Economics Letters, Elsevier, vol. 112(3), pages 247-249, September.
    16. Bing Tong & Guang Yang, 2020. "A Fixed-Interest-Rate New Keynesian Model of China," CFDS Discussion Paper Series 2020/1, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    17. Jean-Bernard Chatelain & Kirsten Ralf, 2017. "Can We Identify the Fed's Preferences?," Working Papers halshs-01549908, HAL.
    18. Stefano Eusepi, 2005. "Comparing forecast-based and backward-looking Taylor rules: a "global" analysis," Staff Reports 198, Federal Reserve Bank of New York.
    19. Ragna Alstadheim & Øistein Røisland, 2017. "When Preferences for a Stable Interest Rate Become Self‐Defeating," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(2-3), pages 393-415, March.
    20. Chatelain, Jean-Bernard & Ralf Kirsten, 2016. "Countercyclical versus Procyclical Taylor Principles," EconStor Preprints 129796, ZBW - Leibniz Information Centre for Economics.

    More about this item

    Keywords

    Monetary policy; Interest rate rules; Price level targeting; Unique equilibrium;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:issued:09-172. 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: . General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.