Monetary Policy with State Contingent Interest Rates
Under a monetary policy rule for the nominal interest rate, i.e. the return on risk-free short-term nominal bonds, there may be a unique local equilibrium, but there are in general multiple global equilibria. We show that the appropriate interest rate instruments under uncertainty are state-contingent interest rates, i.e. the nominal returns on state-contingent nominal assets. A policy that pegs the state-contingent interest rates implements a unique equilibrium globally. This policy is particularly relevant at the zero bound.
|Date of creation:||2009|
|Date of revision:|
|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/
More information through EDIRC
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.:
- Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
- Juan Pablo Nicolini & Francisco Buera, 2002.
"Optimal Maturity of Governement Debt without state contingent bonds,"
Department of Economics Working Papers
016, Universidad Torcuato Di Tella.
- Buera, Francisco & Nicolini, Juan Pablo, 2004. "Optimal maturity of government debt without state contingent bonds," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 531-554, April.
- Bernardino Adão & Isabel Correia & Pedro Teles, 2001.
"Gaps and triangles,"
Working Paper Series
WP-01-13, Federal Reserve Bank of Chicago.
- Bernardino Adão & Isabel Horta Correia & Pedro Teles, 2001. "Gaps and Triangles," Working Papers w200102, Banco de Portugal, Economics and Research Department.
- Adão, Bernardino & Correia, Isabel & Teles, Pedro, 2001. "Gaps and Triangles," CEPR Discussion Papers 2668, C.E.P.R. Discussion Papers.
- Bernardino Adao, 2000. "Gaps and Triangles," Econometric Society World Congress 2000 Contributed Papers 1904, Econometric Society.
- Bennett T. McCallum, 1980.
"Price Level Determinacy with an Interest Rate Policy Rule and Rational Expectations,"
NBER Working Papers
0559, National Bureau of Economic Research, Inc.
- McCallum, Bennett T., 1981. "Price level determinacy with an interest rate policy rule and rational expectations," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 319-329.
- 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.
- DREZE, Jacques & POLEMARCHAKIS, Heracles, 1995.
CORE Discussion Papers
1995078, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- DREZE, Jacques & POLEMARCHAKIS, Heracles, 2000. "Monetary equilibria," CORE Discussion Papers 2000044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Heracles M. Polemarchakis & Jacques H. Drèze, 1995. "Monetary Equilibria," Working Papers hal-00607521, HAL.
- DREZE, Jacques H. & POLEMARCHAKIS, Heracles, . "Monetary equilibria," CORE Discussion Papers RP 1525, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Gaetano Bloise & J. H. Dreze & H. M. Polemarchakis, 2003.
"Monetary Equilibria over an Infinite Horizon,"
03-19, University of Copenhagen. Department of Economics.
- Tomoyuki Nakajima & Herakles Polemarchakis, 2005. "Money and Prices Under Uncertainty," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 223-246.
- George-Marios Angeletos, 2002. "Fiscal Policy with Noncontingent Debt and the Optimal Maturity Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1105-1131.
- Lawrence J. Christiano & Massimo Rostagno, 2001. "Money Growth Monitoring and the Taylor Rule," NBER Working Papers 8539, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:red:sed009:960. 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: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.