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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
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    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 & V. V. Chari & Patrick J. Kehoe, 2009. "Sophisticated monetary policies," Staff Report 419, Federal Reserve Bank of Minneapolis.
    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. Andrew Atkeson & Varadarajan V. Chari & Patrick J. Kehoe, 2010. "Sophisticated Monetary Policies," The Quarterly Journal of Economics, Oxford University Press, pages 47-89.
    5. 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.
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    Cited by:

    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. Bernardino Adão & Isabel Horta Correia & Pedro Teles, 2010. "Short and Long Interest Rate Targets," Working Papers w201015, Banco de Portugal, Economics and Research Department.
    3. Robert E. Hall & Ricardo Reis, 2016. "Achieving Price Stability by Manipulating the Central Bank’s Payment on Reserves," NBER Working Papers 22761, National Bureau of Economic Research, Inc.
    4. Blake, Andrew P., 2012. "Equally shocking news," Economics Letters, Elsevier, vol. 117(3), pages 866-869.
    5. Emmanuel Farhi & Iván Werning, 2007. "Inequality and Social Discounting," Journal of Political Economy, University of Chicago Press, vol. 115, pages 365-402.
    6. Jean Barthélemy & Eric Mengus, 2017. "Credibility and Monetary Policy," Sciences Po publications 2017-01, Sciences Po.
    7. Adão, Bernardino & Correia, Isabel & Teles, Pedro, 2014. "Short and long interest rate targets," Journal of Monetary Economics, Elsevier, pages 95-107.
    8. Dixon, Huw & Pourpourides, Panayiotis M., 2016. "On imperfect competition with occasionally binding cash-in-advance constraints," Journal of Macroeconomics, Elsevier, pages 72-85.
    9. Isabel Correia & Emmanuel Farhi & Juan Pablo Nicolini & Pedro Teles, 2013. "Unconventional Fiscal Policy at the Zero Bound," American Economic Review, American Economic Association, pages 1172-1211.
    10. 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.
    11. Douglas Davis & Edward Simpson Prescott, 2017. "Fixed Prices and Regulatory Discretion as Triggers for Contingent Capital Conversion: An Experimental Examination," International Journal of Central Banking, International Journal of Central Banking, vol. 13(2), pages 33-71, June.
    12. Kimbrough, Kent P., 2012. "Unique monetary equilibria with interest rate rules: An extension," Economics Letters, Elsevier, vol. 114(3), pages 332-334.
    13. Dixon, Huw & Pourpourides, Panayiotis M., 2016. "On imperfect competition with occasionally binding cash-in-advance constraints," Journal of Macroeconomics, Elsevier, pages 72-85.

    More about this item

    Keywords

    Monetary policy; Interest rate rules; Price level targeting; Unique equilibrium;

    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

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