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Money Targeting, Heterogeneous Agents and Dynamic Instability

  • Giorgio Motta
  • Patrizio Tirelli

    ()

Christiano et al. (2005) have shown that a standard medium-sized DSGE model can successfully replicate VAR IRFs to a money supply shock. This important result vanishes under limited asset market partic- ipation. Further, even a moderate fraction of constrained consumers is su¢ cient to dampen the real interest rate reaction to inflation, thereby causeing instability. The introduction of a simple fiscal automatic sta- bilizer restores stability and improves the dynamic performance of the model.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper193.pdf
File Function: First version, 2010
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 193.

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Length: 29 pages
Date of creation: Jul 2010
Date of revision: Jul 2010
Handle: RePEc:mib:wpaper:193
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  1. Colciago, Andrea, 2005. "Rule of Thumb Consumers Meet Sticky Wages," MPRA Paper 3275, University Library of Munich, Germany, revised 27 Apr 2007.
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  19. repec:fth:harver:1435 is not listed on IDEAS
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