On the Determinacy of Monetary Steady States: Disequilibrium Learning and Optimal Monetary Policy
The paper identifies the sources of indeterminacy of monetary steady states in a model of optimum supply of money in which the government maximises revenue through seignorage subject to an underlying inflationary process. We show that the determination of the monetary expansion path is sensitive to the specification of the disequilibrium learning rule and is subject to informational problems. Determinacy is ensured under a specific learning rule, which combines elements of adaptive and rational expectations and is self-corrective. The solution provides an optimal monetary policy which combines zero inflation, positive money and balanced budget.
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|Date of creation:||Mar 1996|
|Contact details of provider:|| Postal: School of Economics, University of Kent, Canterbury, Kent, CT2 7NP|
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