Rule-of-Thumb Consumers and the Design of Interest Rate Rules
We introduce rule-of-thumb consumers in an otherwise standard dynamic sticky price model, and show how their presence can change dramatically the properties of widely used interest rate rules. In particular, the existence of a unique equilibrium is no longer guaranteed by an interest rate rule that satisfies the so called Taylor principle. Our findings call for caution when using estimates of interest rate rules in order to assess the merits of monetary policy in specific historical periods.
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- Roisland, Oistein, 2003. "Capital income taxation, equilibrium determinacy, and the Taylor principle," Economics Letters, Elsevier, vol. 81(2), pages 147-153, November.
- James Bullard & Kaushik Mitra, 2002.
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2000-001, Federal Reserve Bank of St. Louis.
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- John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14 National Bureau of Economic Research, Inc.
- John B. Taylor, 1998.
"An Historical Analysis of Monetary Policy Rules,"
NBER Working Papers
6768, National Bureau of Economic Research, Inc.
- Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
- John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, June.
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