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Monetary Policy with Single Instrument Feedback Rules

Listed author(s):
  • Pedro Teles

    (Banco de Portugal, Universidade Catolica Portuguesa, and CEPR)

  • Isabel Correia

    (Banco de Portugal, Universidade Catolica Portuguesa and CEPR)

  • Bernardino Adao

    (Banco de Portugal)

We revisit the issue of multiplicity of equilibria when monetary policy is conducted with either the interest rate or the money supply as the sole instrument of policy. We show that in standard monetary models there are interest rate feedback rules, and also money supply rules, that implement a unique global equilibrium. This is a contribution to a literature that either concentrates on conditions for local determinacy, or criticizes that approach showing that local determinacy might be associated with global indeterminacy. The interest rate rules we propose are price targeting rules that respond to the forecasts of future economic activity and the future price level.

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File URL: https://economicdynamics.org/meetpapers/2007/paper_622.pdf
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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 622.

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Date of creation: 2007
Handle: RePEc:red:sed007:622
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  2. Carlstrom, Charles T. & Fuerst, Timothy S., 2001. "Timing and real indeterminacy in monetary models," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 285-298, April.
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  11. Dupor, Bill, 2001. "Investment and Interest Rate Policy," Journal of Economic Theory, Elsevier, vol. 98(1), pages 85-113, May.
  12. Gaetano Bloise & Jacques Dréze & Herakles Polemarchakis, 2005. "Monetary equilibria over an infinite horizon," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(1), pages 51-74, 01.
  13. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 675-687, August.
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  16. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
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  19. Marc P. Giannoni & Michael Woodford, 2003. "Optimal Interest-Rate Rules: I. General Theory," Levine's Bibliography 506439000000000384, UCLA Department of Economics.
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  25. Michael Woodford, 2003. "Optimal Interest-Rate Smoothing," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 861-886.
  26. Charles T. Carlstrom & Timothy S. Fuerst, 2002. "Taylor Rules in a Model that Satisfies the Natural-Rate Hypothesis," American Economic Review, American Economic Association, vol. 92(2), pages 79-84, May.
  27. Tomoyuki Nakajima & Herakles Polemarchakis, 2005. "Money and Prices Under Uncertainty," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 223-246.
  28. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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