Determinacy and Learnability of Equilibrium in a Small Open Economy with Sticky Wages and Prices

Eurilton Araújo

No 376, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: If the central bank attempts to minimize a welfare loss function in a small-open economy model with nominal wage and price rigidities, it has been argued that a monetary policy rule that responds to consumer price index (CPI) inflation performs better than rules that react to competing inflation measures. From the viewpoint of determinacy and learnability of rational expectations equilibrium (REE), this paper suggests that a rule that responds to CPI inflation does not significantly increase the central bank's ability to promote the convergence of an economy to a determinate and learnable REE nor improves the speed of this convergence when compared with rules that react to contending inflation measures.

Date: 2014-12
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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Journal Article: Determinacy and learnability of equilibrium in a small-open economy with sticky wages and prices (2016)
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