Elena, Gerko and Kirill, Sossounov (2011): Trend inflation and Monetary policy rules: Determinacy analyses in New Keynesian model with capital accumulation.
Download (429kB) | Preview
The eects of positive trend inflation is analyzed in the framework of the standard New-Keynesian model with Calvo price setting and capital accumulation. It is build on the work of Duport (2001) and Ascari and Ropele (2007) who separately considered eects of capital accumulation and trend inflation in the similar context. It is shown that the simultaneous presence of positive inflation and capital accumulation greatly aects determinacy property of equilibrium in this setup. Namely, in order to maintain stability in addition to actively react to inflation monetary authorities should react to output uctuations but not to a great extend. Overreaction to output may lead to indeterminacy. We also show that for a large set of plausible parameters standard Taylor rule leads to indeterminacy. Alternative monetary policy rules are also analyzed.
|Item Type:||MPRA Paper|
|Original Title:||Trend inflation and Monetary policy rules: Determinacy analyses in New Keynesian model with capital accumulation|
|English Title:||Trend inflation and Monetary policy rules: Determinacy analyses in New Keynesian model with capital accumulation|
|Keywords:||Indeterminacy Interest rate policy rule|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
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
|Depositing User:||kirill sosunov|
|Date Deposited:||02. May 2011 01:25|
|Last Modified:||20. Feb 2013 15:34|
 Ascari, Guido (2004) Staggered Prices and Trend In ation: Some Nuisances. Review of Economic Dynamics, 7: 642-667.  Ascari, Guido, and Tiziano Ropele (2009) Trend In ation, Taylor Principle, and Indeterminacy. Jour- nal of Money, Credit and Banking, 48(1): 1557-1584.  Ascari, Guido, and Tiziano Ropele (2007) Optimal Monetary Policy under Low Trend In ation. Journal of Monetary Economics, 54(8): 2568-2583.  Blanchard, Olivier J. and Nobuhiro Kiyotaki (1987) Monopolistic Competition and the Eects of Aggregate Demand. American Economic Review, 77 (4): 647-66.  Bils, Mark, and Peter J. Klenow (2004) Some Evidence on the Importance of Sticky Prices. Journal of Political Economy, 112(5): 947-985.  Boivin, Jean, and Marc Giannoni (2006) Has Monetary Policy Become More Eective? Review of Economics and Statistics, 88(3): 445-462.  Calvo, Guillermo (1983) Staggered Prices in a Utility-Maximizing Framework. Journal of Monetary Economics, 12(3): 383-98.  Carlstrom C.T., Fuerst T.S. (2005) Investment and interest rate policy: a discrete-time analysis. Journal of Economic Theory, 123, 4-20.  Christiano, L.J., Eichenbaum, M. and C. Evans. (2001) Nominal rigidities and the dynamic eects of a shock to monetary policy NBER Working Paper, No. 8403.  Clarida, Richard, Jordi Gali, and Mark Gertler (2000) Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory.Quarterly Journal of Economics,115(1): 147-180.  Cogley, Timothy, and Argia Sbordone (2008) Trend In ation, Indexation and In ation Persistence in the New Keynesian Phillips Curve. American Economic Review, 98(5): 2101-2026.  Coibion, Olivier, and Yuriy Gorodnichenko. (2008) Monetary Policy, Trend In ation and the Great Moderation: An Alternative InterpretationNBER Working Paper No. 14621.