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On the Determinacy of Monetary Steady States: Disequilibrium Learning and Optimal Monetary Policy

Listed author(s):
  • L.R. de Mello Jr.

    ()

  • J.R. Faria

    ()

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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Paper provided by School of Economics, University of Kent in its series Studies in Economics with number 9607.

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Date of creation: Mar 1996
Handle: RePEc:ukc:ukcedp:9607
Contact details of provider: Postal:
School of Economics, University of Kent, Canterbury, Kent, CT2 7NP

Phone: +44 (0)1227 827497
Web page: http://www.kent.ac.uk/economics/

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