Interest rate rules and global determinacy: An alternative to the Taylor principle

Interest Rate Rules and Global Determinacy: An Alternative to the Taylor Principle

A most wellknown determinacy condition on interest rate rules is the “Taylor principle”, which says that nominal interest rates should respond more than hundred percent to inflation. Unfortunately, notably because interest rates must be positive, the Taylor principle cannot be satisfied for all interest rates, and as a consequence global determinacy may not prevail even though there exists a lo...

The Taylor Principle and Global Determinacy in a Non-Ricardian World

The Taylor principle is quite usually considered as a central condition for price determinacy. Recently, however, this has been questioned on several grounds, notably because (i) this condition is a condition for local determinacy, not global determinacy (ii) it has been derived in “Ricardian” economies, and it appears that going to a nonRicardian framework makes a very big difference for the d...

Interest rate rules, price determinacy and the value of money in a non-Ricardian world

This article studies under which conditions interest rate rules “à la Taylor (1993)” lead to price determinacy. We scrutinize notably two famous results, which are standard in the traditional “Ricardian” model with a single dynasty of consumers: (1) a pure interest rate peg leads to nominal price indeterminacy; (2) a strong reaction (usually more than one for one) of nominal interest rates to i...

Global Knowledge, Local Solutions: Interest Rate and Monetary Policy

Taylor interest rate and Monetary Conditions Index