IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Trend inflation and Monetary policy rules: Determinacy analyses in New Keynesian model with capital accumulation

  • Elena, Gerko
  • Kirill, Sossounov

The eects of positive trend inflation is analyzed in the framework of the standard New-Keynesian model with Calvo price setting and capital accumulation. It is build on the work of Duport (2001) and Ascari and Ropele (2007) who separately considered eects of capital accumulation and trend inflation in the similar context. It is shown that the simultaneous presence of positive inflation and capital accumulation greatly aects determinacy property of equilibrium in this setup. Namely, in order to maintain stability in addition to actively react to inflation monetary authorities should react to output uctuations but not to a great extend. Overreaction to output may lead to indeterminacy. We also show that for a large set of plausible parameters standard Taylor rule leads to indeterminacy. Alternative monetary policy rules are also analyzed.

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:
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30551.

in new window

Date of creation: 11 Jan 2011
Date of revision:
Handle: RePEc:pra:mprapa:30551
Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page:

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. Boivin, Jean & Giannoni, Marc, 2006. "Has Monetary Policy Become More Effective?," CEPR Discussion Papers 5463, C.E.P.R. Discussion Papers.
  2. Guido Ascari & Tiziano Ropele, 2007. "Optimal monetary policy under low trend inflation," Temi di discussione (Economic working papers) 647, Bank of Italy, Economic Research and International Relations Area.
  3. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
  4. Guido Ascari, 2004. "Staggered prices and trend inflation: some nuisances," Macroeconomics 0404029, EconWPA.
  5. 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.
  6. Guido Ascari & Tiziano Ropele, 2007. "Trend Inflation, Taylor Principle and Indeterminacy," Kiel Working Papers 1332, Kiel Institute for the World Economy.
  7. Richard Clarida & Jordi GalĂ­ & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
  8. Olivier Coibion & Yuriy Gorodnichenko, 2011. "Monetary Policy, Trend Inflation, and the Great Moderation: An Alternative Interpretation," American Economic Review, American Economic Association, vol. 101(1), pages 341-70, February.
  9. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  10. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  11. repec:oup:qjecon:v:115:y:2000:i:1:p:147-180 is not listed on IDEAS
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:pra:mprapa:30551. 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: (Ekkehart Schlicht)

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.