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An Analytical Solution for the Interest Rate Reaction Function in a Neo- Keynesian Economy Using the Undetermined Coefficients Method

  • Arend, Mario

In this research note I propose the use of the undetermined coefficients method as an alternative approach to solve the Central Bank optimization problem in a neo-keynesian economy. The advantage of using this method is that it provides a theory as to how rational expectations are constructed, and how shocks in the economy are propagated, in order to find an analytical solution for the interest rate reaction function in an economy with a forward-looking behavior.

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File URL: https://mpra.ub.uni-muenchen.de/17908/1/MPRA_paper_17908.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17908.

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Date of creation: 01 Dec 2007
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Handle: RePEc:pra:mprapa:17908
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  1. Svensson, L-E-O, 1997. "Inflation Targeting : Some Extensions," Papers 625, Stockholm - International Economic Studies.
  2. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
  3. Svensson, Lars E.O. & Rudebusch , Glenn, 1998. "Policy Rules for Inflation Targeting," Seminar Papers 637, Stockholm University, Institute for International Economic Studies.
  4. Svensson, L.E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Papers 646, Stockholm - International Economic Studies.
  5. Athanasios Orphanides, 1998. "Monetary policy evaluation with noisy information," Finance and Economics Discussion Series 1998-50, Board of Governors of the Federal Reserve System (U.S.).
  6. Sean Collins & Pierre L. Siklos, 2004. "Optimal Monetary Policy Rules and Inflation Targets: Are Australia, Canada, and New Zealand Different from the U.S.?," Open Economies Review, Springer, vol. 15(4), pages 347-362, October.
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