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Interest Rate Control Rules and Macroeconomic Stability in a Heterogeneous Two-Country Model

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  • Fujisaki, Seiya
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    We analyze relations between several types of interest rate control rules and equilibrium determinacy using a two-country model featuring preference and production parameters that may differ between countries, in which two kinds of goods are tradable. Such heterogeneity may violate the Taylor principle, which implies that aggressive monetary policy is desirable to attain determinate equilibrium. We evaluate the forms of interest rate control needed to attain macroeconomic stability in consideration of the heterogeneity.

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    File URL: https://mpra.ub.uni-muenchen.de/37017/1/MPRA_paper_37017.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37017.

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    Date of creation: 01 Mar 2012
    Handle: RePEc:pra:mprapa:37017
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    1. Stephen McKnight & Alexander Mihailov, 2007. "Re-examining the Importance of Trade Openness for Aggregate Instability," Economic Analysis Research Group Working Papers earg-wp2007-12, Henley Business School, Reading University.
    2. Nicoletta Batini & Paul Levine & Joseph Pearlman, 2003. "Indeterminacy with inflation-forecast-cased rules in a two-bloc model," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
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    9. Yoshiyasu Ono, 2006. "International Asymmetry In Business Activity And Appreciation Of A Stagnant Country'S Currency," The Japanese Economic Review, Japanese Economic Association, vol. 57(1), pages 101-120.
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    14. Stephen McKnight, 2011. "Investment and interest rate policy in the open economy," Oxford Economic Papers, Oxford University Press, vol. 63(4), pages 673-699, December.
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    16. Chen, Shu-hua & Shaw, Ming-fu & Lai, Ching-chong & Chang, Juin-jen, 2008. "Interest-rate rules and transitional dynamics in an endogenously growing open economy," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 54-75, February.
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    21. repec:ebl:ecbull:v:5:y:2007:i:11:p:1-7 is not listed on IDEAS
    22. Marco Airaudo & Luis-Felipe Zanna, 2004. "Endogenous Fluctuations in Open Economies: the Perils of Taylor Rules Revisited," Econometric Society 2004 Latin American Meetings 80, Econometric Society.
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