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Intertemporal Coordination Failure and Monetary Policy

  • Ronny Mazzocchi

    ()

The turn of century long period of sustained growth with low and stable inflation let the economic profession and the public opinion to think that the right theoretical foundation for macroeconomic policy had been found. However the Great Crisis of 2008 indicates a spectac- ular failure of this framework in dealing with sources of macroeconomic instability and providing policy advise. Financial instability is the new challenge for monetary policy. Most of the recent research indicates that financial crises follow prolonged unwinding of investment-saving imbalances which are not contemplated by the standard theoretical framework. This paper draws a dynamic model where investment- saving imbalances are allowed to develop. It introduces different types of feedback interest-rate rules in order to provide some preliminary indications for the conduct of monetary policy.

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Paper provided by Department of Economics and Management in its series DEM Discussion Papers with number 2013/15.

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Date of creation: 2013
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Handle: RePEc:trn:utwpem:2013/15
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