Eagle, David (2007): Revealing the naked truth behind price determinacy, infinite-horizon rational expectations, and inflation targeting.
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By presenting two examples where the non-exploding criterion fails miserably, we demonstrate that that criterion does not universally apply. Therefore, by normal academic standards and burdens of proof, the previous price-determinacy literature has the burden to prove that the non-explosive criterion does apply to their models. However, that literature has not met and probably cannot meet that burden. Instead of using the non-explosive criterion, this paper looks at an economy with an arbitrarily large, but finite horizon and concludes that inflation targeting leads to price indeterminacy even with a Taylor-like feedback rule for setting the nominal interest rate.
|Item Type:||MPRA Paper|
|Institution:||Eastern Washington University|
|Original Title:||Revealing the naked truth behind price determinacy, infinite-horizon rational expectations, and inflation targeting|
|Keywords:||non-explosive criterion; price determinacy; inflation targeting; stability criterion; saddle-point criterion; infinite-horizon economies; pegging the interest rate|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
|Depositing User:||David Eagle|
|Date Deposited:||23. Feb 2007|
|Last Modified:||16. Feb 2013 22:10|
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Revealing the naked truth behind price determinacy, infinite-horizon rational expectations, and inflation targeting. (deposited 20. Jan 2007)
- Revealing the naked truth behind price determinacy, infinite-horizon rational expectations, and inflation targeting. (deposited 23. Feb 2007) [Currently Displayed]