IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Backward- versus Forward-Looking Feedback Interest Rate Rules

This paper proposes conditions for the existence and uniqueness of solutions to systems of differential equations with delays or advances in which some variables are non-predetermined. An application to the issue of optimal interest rate policy is then develop in a flexible-price model where money enters the utility function. Central banks have the choice between a rule that depends on past inflation rates or one that depends on predicted interest rates. When inflation rates are selected over a bounded time interval, the problem is characterized by a system of delay or advanced differential equations. We then prove that if the central bank's forecast horizon is not too long, an active and forward-looking monetary policy is not too destabilizing : the equilibrium trajectory is unique and monotonic.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2012/12051.pdf
Download Restriction: no

Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 12051.

as
in new window

Length: 33 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:mse:cesdoc:12051
Contact details of provider: Postal:
106-112 boulevard de l'Hôpital 75 647 PARIS CEDEX 13

Phone: + 33 44 07 81 00
Fax: + 33 1 44 07 83 01
Web page: http://centredeconomiesorbonne.univ-paris1.fr/

More information through EDIRC

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.:

as in new window
  1. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
  2. Boucekkine, Raouf & Licandro, Omar & Puch, Luis A. & del Rio, Fernando, 1999. "Vintage Capital and the Dynamics of the AK Model," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2000009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  3. Benhabib, J. & Schmitt-Grohe, S. & Uribe, M., 1999. "Avoiding Liquidity Traps," Working Papers 99-21, C.V. Starr Center for Applied Economics, New York University.
  4. d'Albis, Hippolyte & Augeraud-Véron, Emmanuelle & Venditti, Alain, 2010. "Business cycle fluctuations and learning-by-doing externalities in a one-sector model," LERNA Working Papers 10.13.319, LERNA, University of Toulouse.
  5. Hippolyte D'Albis & Emmanuelle Augeraud-Véron & Hermen Jan Hupkes, 2012. "Discontinuous Initial Value Problems for Funtional Differential-Algebraic Equations of Mixed Type," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00717412, HAL.
  6. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
  7. BOUCEKKINE, Raouf & DE LA CROIX, David & LICANDRO, Omar, . "Modelling vintage structures with DDEs: principles and applications," CORE Discussion Papers RP 1758, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Dupor, Bill, 2001. "Investment and Interest Rate Policy," Journal of Economic Theory, Elsevier, vol. 98(1), pages 85-113, May.
  9. Woodford, M., 1999. "Optimal Monetary Policy Inertia.," Papers 666, Stockholm - International Economic Studies.
  10. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 2003. "Backward-looking interest-rate rules, interest-rate smoothing, and macroeconomic instability," Working Papers 03-4, Federal Reserve Bank of Philadelphia.
  11. Benhabib, Jess, 2004. "Interest Rate Policy in Continuous Time with Discrete Delays," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 1-15, February.
  12. Gray, Malcolm R & Turnovsky, Stephen J, 1979. "Expectational Consistency, Informational Lags, and the Formulation of Expectations in Continuous Time Models," Econometrica, Econometric Society, vol. 47(6), pages 1457-74, November.
  13. Carlstrom, Charles T. & Fuerst, Timothy S., 2005. "Investment and interest rate policy: a discrete time analysis," Journal of Economic Theory, Elsevier, vol. 123(1), pages 4-20, July.
  14. Stefano Eusepi, 2005. "Comparing forecast-based and backward-looking Taylor rules: a "global" analysis," Staff Reports 198, Federal Reserve Bank of New York.
  15. Mauro Bambi, 2006. "Endogenous growth and time to build: the AK case," Computing in Economics and Finance 2006 77, Society for Computational Economics.
  16. Benhabib, Jess & Schmitt-Grohé, Stephanie & Uribe, Martín, 1999. "Monetary Policy and Multiple Equilibria," CEPR Discussion Papers 2316, C.E.P.R. Discussion Papers.
  17. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series 1998-03, Board of Governors of the Federal Reserve System (U.S.).
  18. Charles T. Carlstrom & Timothy S. Fuerst, 2001. "Timing and real indeterminacy in monetary models," Working Paper 9910R, Federal Reserve Bank of Cleveland.
  19. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mse:cesdoc:12051. 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: (Lucie Label)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.