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Taylor rules and equilibrium determinacy in a two-country model with non-traded goods

  • Fujisaki, Seiya
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    We analyze a relation between interest rate controls and equilibrium determinacy using a two-country model featuring traded and non-traded goods. In addition, parameters of preference and production may differ between the two countries. We find that macroeconomic stability strongly depends on such heterogeneity including monetary policy, and that it is easier to generate determinate equilibrium under liberalization of the economy.

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    File URL: http://mpra.ub.uni-muenchen.de/40023/1/MPRA_paper_40023.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40023.

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    Date of creation: 12 Jul 2012
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    Handle: RePEc:pra:mprapa:40023
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    1. Stephen McKnight & Alexander Mihailov, 2007. "Re-examining the Importance of Trade Openness for Aggregate Instability," Economics & Management Discussion Papers em-dp2007-52, Henley Business School, Reading University.
    2. repec:ebl:ecbull:v:5:y:2007:i:11:p:1-7 is not listed on IDEAS
    3. Stephen McKnight, 2007. "Real Indeterminacy and the Timing of Money in Open Economies," Economic Analysis Research Group Working Papers earg-wp2007-09, Henley Business School, Reading University.
    4. Stephen McKnight, 2007. "Investment and Interest Rate Policy in the Open Economy," Economics & Management Discussion Papers em-dp2007-51, Henley Business School, Reading University.
    5. Batini, Nicoletta & Levine, Paul & Pearlman, Joseph G., 2004. "Indeterminacy with inflation-forecast-based rules in a two-bloc model," Working Paper Series 0340, European Central Bank.
    6. Laurence Ball, 1998. "Policy Rules for Open Economies," NBER Working Papers 6760, National Bureau of Economic Research, Inc.
    7. Benigno, Gianluca & Benigno, Pierpaolo, 2006. "Designing targeting rules for international monetary policy cooperation," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 473-506, April.
    8. 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.
    9. Richard Clarida & Jordi Gali & Mark Gertler, 2002. "A Simple Framework for International Monetary Policy Analysis," NBER Working Papers 8870, National Bureau of Economic Research, Inc.
    10. Farmer, Roger E A & Lahiri, Amartya, 2002. "A Two-Country Model of Endogenous Growth," CEPR Discussion Papers 3245, C.E.P.R. Discussion Papers.
    11. Marco Airaudo & Luis-Felipe Zanna, 2005. "Interest rate rules, endogenous cycles, and chaotic dynamics in open economies," International Finance Discussion Papers 849, Board of Governors of the Federal Reserve System (U.S.).
    12. 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.
    13. Kam, Timothy, 2007. "Interest-rate smoothing in a two-sector small open economy," Journal of Macroeconomics, Elsevier, vol. 29(2), pages 283-304, June.
    14. Simone Valente, 2007. "International Status Seeking, Trade, and Growth Leadership," CER-ETH Economics working paper series 07/75, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    15. Valente, Simone, 2006. "Trade, Envy and Growth: International Status Seeking in a Two-Country World," MPRA Paper 1095, University Library of Munich, Germany.
    16. James Bullard & Eric Schaling, 2009. "Monetary Policy, Determinacy, and Learnability in a Two-Block World Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(8), pages 1585-1612, December.
    17. Luis-Felipe Zanna, 2003. "Interest rate rules and multiple equilibria in the small open economy," International Finance Discussion Papers 785, Board of Governors of the Federal Reserve System (U.S.).
    18. 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.
    19. De Fiore, Fiorella & Liu, Zheng, 2005. "Does trade openness matter for aggregate instability?," Journal of Economic Dynamics and Control, Elsevier, vol. 29(7), pages 1165-1192, July.
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