On the Determinacy of Monetary Policy under Expectational Errors

Chadha, Jagjit S. and Corrado, Luisa (2007) On the Determinacy of Monetary Policy under Expectational Errors. Journal of Money Credit and Banking, . ISSN 0022-2879 . E-ISSN 1538-4616. (Submitted) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided)

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Abstract

Forward looking agents with expectational errors provide a problem for monetary policy. We show that under such conditions a standard interest rate rule may not achieve determinacy. We suggest a modification to the standard policy rule that guarantees determinacy in this setting, which involves the policy maker co-ordinating inflation dynamics by responding to each of past, current and expected inflation. We show that this solution maps directly into Woodford's (2000) timeless perspective. We trace the responses in an artificial economy and illustrate the extent to which macroeconomic persistence is reduced following the adoption of this rule.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: Jagjit Chadha
Date Deposited: 06 Aug 2008 15:11
Last Modified: 10 Mar 2016 16:28
Resource URI: https://kar.kent.ac.uk/id/eprint/11233 (The current URI for this page, for reference purposes)
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