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Determinacy without the Taylor Principle
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AI
DOI：10.1086/723634.png)
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Abstract
En 中文
Our understanding of monetary policy is complicated by an indeterminacy problem: the same path for the nominal interest rate is consistent with multiple equilibrium paths for inflation and output. We offer a potential resolution by showing that small frictions in social memory and intertemporal coordination can remove this indeterminacy. Under our perturbations, the unique equilibrium is the same as that selected by the Taylor principle, but it no more relies on it; monetary policy is left to play only a stabilization role; and fiscal policy needs to be Ricardian even when monetary policy is passive.
Keywords:
RATIONAL-EXPECTATIONS
SPECULATIVE HYPERINFLATIONS
REPEATED GAMES
STICKY PRICES
FISCAL THEORY
MONETARY
EQUILIBRIA
MODELS
INFORMATION
LEVEL
Journal
IF:
6.3
Papers:
2.6K
Citations:
3.2W