Monetary Policy with Single Instrument Feedback Rules .

We revisit the issue of multiplicity of equilibria when monetary policy is conducted with either the interest rate or the money supply as the sole instrument of policy. We show that in standard monetary models there are interest rate feedback rules, and also money supply rules, that implement a unique global equilibrium. This is a contribution to a literature that either concentrates on conditions for local determinacy, or criticizes that approach showing that local determinacy might be associated with global indeterminacy. The interest rate rules we propose are price targeting rules that respond to the forecasts of future economic activity and the future price level. Key words: Monetary policy; interest rate rules; unique equilibrium. JEL classi…cation: E31; E40; E52; E58; E62; E63. We thank Andy Neumeyer and an anonymous referee for very useful comments. We are also thankful to participants at the 2006 ESSIM of the CEPR, at the JLS series of the ECB, CFS, and Deutsche Bundesbank, at the FRB of Chicago and FRB of New York, at Universitat Pompeu Fabra, European University Institute and at the 2004 Meetings of the SED. We gratefully acknowledge …nancial support of FCT. The opinions are solely those of the authors and do not necessarily represent those of the Banco de Portugal.