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Monetary Policy with Single Instrument Feedback Rules

  • 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
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Handle: RePEc:red:sed007:622
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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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  10. Marc P. Giannoni & Michael Woodford, 2003. "Optimal Interest-Rate Rules: A General Approach," Levine's Bibliography 666156000000000246, UCLA Department of Economics.
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  23. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 345-80.
  24. 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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