Logo
Munich Personal RePEc Archive

The eventual failure and price indeterminacy of inflation targeting

Eagle, David (2006): The eventual failure and price indeterminacy of inflation targeting.

This is the latest version of this item.

[thumbnail of MPRA_paper_1883.pdf]
Preview
PDF
MPRA_paper_1883.pdf

Download (194kB) | Preview

Abstract

In stark contrast to the previous literature, we find that IT leads to price indeterminacy even when the central bank uses a Taylor-like feedback rule to peg the nominal interest rate. We also find that there is no mechanism with IT to determine the current inflation rate or price level. We conclude that the previous literature has either committed mathematical errors involving infinity or misused the non-explosive criterion for ruling out speculative bubbles. To avoid making errors involving infinity, we analyze inflation targeting (IT) in a typical rational-expectations, pure-exchange, general-equilibrium model where the time horizon is arbitrarily large, but finite.

Available Versions of this Item

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.