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Expectational stability under non-zero trend inflation

Kobayashi, Teruyoshi and Muto, Ichiro (2009): Expectational stability under non-zero trend inflation.

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Abstract

This study examines the expectational stability of the rational expectation equilibria(REE) under Taylor rules when trend inflation is non-zero. We find that whether or not a higher (lower) trend inflation makes the REE more (less) unstable depends largely on the data (such as contemporaneous data, forecasts and lagged data) used in the conduct of monetary policy.

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