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Determinacy and sunspots in a nonlinear monetary model

  • Alessandra Cornaro


    (DISCE, Università Cattolica)

  • Anna Agliari


    (DISCE, Università Cattolica)

In this paper we analyze a basic sticky price model with monopolistic competition and price stickiness à la Calvo. Starting by the relations describing a general economic equilibrium model (see Woodford in Interest and Prices, Foundations of a Theory of Monetary Policy, The MIT Press, 2003), as it results from the optimizing behavior of the private agents, we provide a nonlinear model for the monetary policy analysis. This kind of model is a candidate for the existence of multiple equilibria, with a dependence of exogenous sunspots. We explore the stability of such a model combined with interest rate rules in order to investigate the determinacy of the model and we find, for some policy and elasticity parameters, the conditions under which it is possible.

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Paper provided by Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) in its series DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali with number dises1060.

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Length: 18 pages
Date of creation: Feb 2010
Date of revision:
Publication status: Published in Review of Economics, March 2010, pages nn1-nn2
Handle: RePEc:ctc:serie2:dises1060
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