2 edition of Price level indeterminacy under an interest rate rule found in the catalog.
Price level indeterminacy under an interest rate rule
by University of London. Queen Mary College. Department of Economics in London
Written in English
|Statement||Keith Blackburn, David Currie.|
|Series||Paper / University of London. Queen Mary College. Department of Economics -- no.143, Research paper / Programme of Research into Small Macromodels -- no.37|
|Contributions||Currie, David A.|
4 Interest-Rate Rules ContemporaryProposals39 GeneralCriticismsofInterest-RateRules44 GeneralCriticismsofInterest-RateRules44 Neo-WicksellianMonetaryTheory49 5 Plan of the Book PART I Analytical Framework 2 Price-Level Determination under Interest-Rate Rules 1 Price-Level Determination in a . debt. We "nd that under this type of balanced-budget rule, the price level is indeterminate when the monetary authority follows an interest rate peg and is determinate when the monetary authority follows a money growth rate peg. These results are not necessary consequences of the monetary policy speci"cations alone.
interest-rate rules. We discuss indeterminacy under money-growth rules in section 4. In section 5, we present monetary-policy rules that assure determinacy. Section 6 is a discussion of some implications of ﬁscal policy for determinacy. Concluding remarks areprovidedinsection7. an equilibrium price level at all. According to the well-known critique of Sargent and Wallace (), interest-rate rules as such are undesirable, as they lead to indeterminacy of the rational-expectations equilibrium price level. As McCallum () notes, however, their analysis assumes a rule that speci es an exogenous path for the short.
Begg, D., Haque, B.: A nominal interest rate rule and price level indeterminacy reconsidered. Greek Econ. Rev.6, 31–46 () Google Scholar. Get this from a library! The young person's guide to neutrality, price level indeterminacy, interest rate pegs, and fiscal theories of the price level. [Willem H Buiter; National Bureau of Economic Research.] -- Abstract: The paper establishes the following: First, money is neutral even if there is a non-zero stock of non-monetary nominal public debt, because the .
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Blackburn & D. Currie, "Price Level Indeterminacy Under an Interest Rate Rule: A Resolution," Working PapersQueen Mary University of London, School of Economics and Finance. Handle: RePEc:qmw:qmwecwAuthor: K. Blackburn, D. Currie. Journal of Monetary Economics 8 () North-Holland Publishing Company PRICE LEVEL DETERMINACY WITH AN INTEREST RATE POLICY RULE AND RATIONAL EXPECTATIONS Bennett T.
McCALLUM* Carnegie-MeIlon University, Piburgh, PAUSA NBEØ, Cambridge, MAUSA This paper reconsiders a result obtained by Sargent and Wallace namely, that price level indeterminacy Cited by: McCallum: w Some Issues Concerning Interest Rate Pegging, Price Level Determinacy, and the Real Bills Doctrine: McCallum: w Monetarist Principles and the Money Stock Growth Rule: Woodford: w Price Level Determinacy Without Control of a Monetary Aggregate: McCallum: w Indeterminacy, Bubbles, and the Fiscal Theory of Price Level Cited by: Buiter: w The Fallacy of the Fiscal Theory of the Price Level: McCallum: w Indeterminacy, Bubbles, and the Fiscal Theory of Price Level Determination: Woodford: w Price Level Determinacy Without Control of a Monetary Aggregate: McCallum: w Some Issues Concerning Interest Rate Pegging, Price Level Determinacy, and the Real Bills.
Downloadable (with restrictions). This paper reconsiders a result obtained by Sargent and Wallace, namely, that price level indeterminacy obtains in their well-known model if the monetary authorities adopt a policy feedback rule for the interest rate rather than the money stock.
Since the Federal Reserve seems often to have used the federal funds rate as its. The basic conclusions concerning price level indeterminacy will obtain with the constant interest rate replaced by any exogenous sequence of current and future interest rates.
3 An elasticity of substitution less than or equal to one is sufficient to make money `essential’ in this model and hence ensures that the under constant money supply. Book. Dec ; Daniel G. Garcés Díaz that price level indeterminacy obtains in their model if the monetary authorities adopt a feedback rule for the interest rate rather than the money.
Indeterminacy and interest rate rules 5 of the wage rate Wt and the price level Pt as of period t. Equation (1a) is a standard condition for the optimal leisure-consumption choice, which — since consumption is subject to a cash-in-advance constraint — is affected by the nominal rate of interest in period t, denoted by it 1.
Equation (1c) is. Esther Ejim Last Modified Date: J Price level and interest rate are linked together in the sense that the manipulation of the level of interest rates is one of the tools used by the central bank or government to control price levels in an economy.
The central bank in a country uses interest rates as one of its main tools for either increasing or decreasing price.
Downloadable (with restrictions). The paper establishes the following: First, money is neutral even if there is a non-zero stock of non-monetary nominal public debt, because the government adjusts real taxes to satisfy its inter-temporal budget constraint.
Second, Woodford’s fiscal theory of the price level, according to which for certain fiscal rules the (initial) price level is independent. Keywords: Indeterminacy, Interest Rate Rules, Small Open Economy, Terms of Trade.
(17) implies that the price of home goods rises relative to the price level. Under the law of one price, role in equilibrium determinacy under interest rate rules that target various measures of the. Under a feedback rule that sets the nominal interest rate as a non-negative and non-decreasing function of the inflation rate, the price level is indeterminate for both low and high values of the.
Recent research has shown that forward-looking Taylor rules are subject to indeterminacy in New Keynesian models with capital and investment spending.
This paper shows that adopting a forward-looking Wicksellian rule that responds to the price level, rather than to inflation, is one potential remedy for the indeterminacy problem. 1. Introduction. The performance of alternative rules for interest rate setting by central banks of open economies has been the subject of increasing attention in the literature.
1 Interest rate rules can be used to achieve a variety of policy goals. Among these, properly designed interest rate rules can be consistent with maintaining exchange rate stability.
McCallum: w Price Level Determinacy with an Interest Rate Policy Rule and Rational Expectations: Buiter: w The Young Person's Guide to Neutrality, Price Level Indeterminacy, Interest Rate Pegs, and Fiscal Theories of the Price Level: McCallum: w On Non-Uniqueness in Rational Expectations Models: An Attempt at Perspective: McCallum: w Indeterminacy.
One is the standard textbook Taylor rule stating that the central bank adjusts nominal interest rates in response to inflation and to the level of the output gap (Galí,Chapter 3).
4 When used in a standard small-scale New Keynesian model with sticky prices and zero trend inflation, a rule complying with the Taylor Principle (coefficient. show that interest rate rules cause indeterminacy in equilibrium. where P is the price level of traded goods in home currency, E is the exchange rate (defined as the ψ) while the equilibrium is under indeterminacy if the monetary policy is passive (ψ′.
If the monetary authority adjusts the interest rate in response to deviations of the price level from a target path, then there is a unique equilibrium under.
interest rate and the natural real rate represents the key channel through which central bank actions affect the economy. Woodford correctly shows that there is no inconsistency in developing a theory of the general price level in which monetary policy is characterized by control of a nominal interest rate rather than control of the money supply.
Equilibrium Indeterminacy under Forward-Looking Interest Rate Rules Kansai University Working Paper No. F 16 Pages Posted: 8 Feb Last revised: 9 Mar. If the rule is Ì‚ R t = rÌ‚ t + Ï„ E t Ì‚ t+1, en, for Ï„ = 1, only expected inflation is pinned down, not so the distribution of inflation across states.
Wicksellian interest rate rules, as in Woodford (), have the interest rate respond to the price level rather than flation.Optimal Interest-Rate Rules in a Forward-Looking Model, and Inflation Stabilization versus Price-Level Stabilization Marc P.
Giannoni. NBER Working Paper No. Issued in May NBER Program(s):Economic Fluctuations and Growth, Monetary Economics.
This paper characterizes the properties of various interest-rate rules in a basic forward. The central bank can determine the path of inflation, but that is the rate of change of the price level relative to an indeterminate initial level.
If the initial price level is fixed (that is, it was assumed to be fixed in the previous time step), then the valuation rule runs into difficulties.