Price Level Determinacy under a Pure Interest Rate Peg
In this article we reexamine a famous result by Sargent and Wallace (1975) according to which a "pure interest rate peg" leads to nominal price indeterminacy. We use Weil's (1991) generalization of the Sidrauski-Brock model, where arrival of new "generations" of infinitely lived agents is allowed, and we obtain the following results: (i) nominal indeterminacy holds in the traditional Sidrauski-Brock framework; (ii) This nominal indeterminacy disappears as soon as new generations arrive in time, via some rigorous version of Patinkin's "real balance effect"; (iii) A multiplicity of solutions may still remain, but full determinacy occurs in some cases, depending notably on fiscal policy or the distribution of endowments in time. (Copyright: Elsevier)
Volume (Year): 3 (2000)
Issue (Month): 1 (January)
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/review.htm
More information through EDIRC
|Order Information:|| Web: http://www.EconomicDynamics.org/RED17.htm Email: |
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.:
- Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer, vol. 4(3), pages 381-99.
- McCallum, Bennett T., 1981.
"Price level determinacy with an interest rate policy rule and rational expectations,"
Journal of Monetary Economics,
Elsevier, vol. 8(3), pages 319-329.
- Bennett T. McCallum, 1980. "Price Level Determinacy with an Interest Rate Policy Rule and Rational Expectations," NBER Working Papers 0559, National Bureau of Economic Research, Inc.
- Weil, Philippe, 1991. "Is Money Net Wealth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(1), pages 37-53, February.
- Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
- Brock, William A., 1975. "A simple perfect foresight monetary model," Journal of Monetary Economics, Elsevier, vol. 1(2), pages 133-150, April.
- Woodford, Michael, 1990. "The optimum quantity of money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 20, pages 1067-1152 Elsevier.
- Weil, Philippe, 1987. "Permanent budget deficits and inflation," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 393-410, September.
- Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
- McCallum, Bennett T., 1986.
"Some issues concerning interest rate pegging, price level determinacy, and the real bills doctrine,"
Journal of Monetary Economics,
Elsevier, vol. 17(1), pages 135-160, January.
- Bennett T. McCallum, 1984. "Some Issues Concerning Interest Rate Pegging, Price Level Determinacy, and the Real Bills Doctrine," NBER Working Papers 1294, National Bureau of Economic Research, Inc.
- Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-77, October.
- Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
- Woodford, Michael, 1995.
"Price-level determinacy without control of a monetary aggregate,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 43(1), pages 1-46, December.
- Michael Woodford, 1995. "Price Level Determinacy Without Control of a Monetary Aggregate," NBER Working Papers 5204, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:red:issued:v:3:y:2000:i:1:p:194-211. 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: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.