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Determinacy, Learnability, and Monetary Policy Inertia

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  • JAMES BULLARD
  • KAUSHIK MITRA

Abstract

We show how monetary policy inertia can help alleviate problems of indeterminacy and non‐existence of stationary equilibrium observed for some commonly studied monetary policy rules. We also find that inertia promotes learnability of equilibrium. The context is a simple, forward‐looking model of the macroeconomy widely used in the rapidly expanding literature in this area. We conclude that this might be an important reason why central banks in the industrialized economies display considerable inertia when adjusting monetary policy in response to changing economic conditions.

Suggested Citation

  • James Bullard & Kaushik Mitra, 2007. "Determinacy, Learnability, and Monetary Policy Inertia," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1177-1212, August.
  • Handle: RePEc:wly:jmoncb:v:39:y:2007:i:5:p:1177-1212
    DOI: 10.1111/j.1538-4616.2007.00062.x
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    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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