The Problems of Learning Stability and Determinacy in Inflation Targeting Based On Constant Interest Rate Projections∗
نویسندگان
چکیده
Monetary policy is sometimes formulated in terms of a target level of inflation, a fixed time horizon and a constant interest rate that is anticipated to achieve the target at the specified horizon under rational expectations These requirements lead to instrument rules for interest rate setting that can be called CIP (constant interest rate projections) rules. We consider the twin questions of determinacy and stability under adaptive learning for CIP interest rate policy using the standard New Keynesian model. It is shown that CIP policy necessarily leads to both indeterminacy of equilibria and instability under learning if the economy is fully forward looking. These unfavourable properties of CIP policy remain in most cases of inertial demand and price behaviour. JEL classification: E52, E61, E32
منابع مشابه
Performance of Inflation Targeting Based On Constant Interest Rate Projections∗
Monetary policy is sometimes formulated in terms of a target level of inflation, a fixed time horizon and a constant interest rate that is anticipated to achieve the target at the specified horizon. These requirements lead to constant interest rate (CIR) instrument rules. Using the standard New Keynesian model, it is shown that some forms of CIR policy lead to both indeterminacy of equilibria a...
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