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Interest Rate Rules, Target Policies, and Endogenous Economic Growth in an Open Economy

This paper sets up an endogenous growth model of an open economy in which the monetary authority implements a gradualist interest-rate rule with targets for inflation and economic growth. We show that, under a passive rule, a monetary equilibrium exists and is unique; moreover, the equilibrium is locally determinate. Under an active rule, the open economy either generates multiple equilibria or does not have any equilibrium. If equilibria exist, the high-growth equilibrium is locally determinate while the low-growth equilibrium is a source. Besides these, the stabilization and growth effects of alternative target policies are also explored in this study.

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File URL: http://www.econ.sinica.edu.tw/upload/file/04-a004.2008090210554912.pdf
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Paper provided by Institute of Economics, Academia Sinica, Taipei, Taiwan in its series IEAS Working Paper : academic research with number 04-A004.

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Length: 26 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:sin:wpaper:04-a004
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Web page: http://www.econ.sinica.edu.tw/index.php?foreLang=en
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  11. Lahiri, Amartya, 2000. "Disinflation programs under policy uncertainty," Journal of International Economics, Elsevier, vol. 50(2), pages 351-373, April.
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  13. John B. Taylor, 1998. "An Historical Analysis of Monetary Policy Rules," NBER Working Papers 6768, National Bureau of Economic Research, Inc.
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  18. Turnovsky, Stephen J., 1996. "Fiscal policy, growth, and macroeconomic performance in a small open economy," Journal of International Economics, Elsevier, vol. 40(1-2), pages 41-66, February.
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  21. Wirl, F. & Hartl, R.F. & Feichtinger, G. & Kort, P.M., 2001. "The dynamics of a simple relative adjustment-cost framework," Other publications TiSEM ef37789b-064c-41db-8cfc-8, Tilburg University, School of Economics and Management.
  22. Meng, Qinglai, 2002. "Monetary policy and multiple equilibria in a cash-in-advance economy," Economics Letters, Elsevier, vol. 74(2), pages 165-170, January.
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  26. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
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