Determinacy and sunspots in a nonlinear monetary model

Alessandra Cornaro () and Anna Agliari ()
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Alessandra Cornaro: DISCE, Università Cattolica

No dises1060, DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: In this paper we analyze a basic sticky price model with monopolistic competition and price stickiness à la Calvo. Starting by the relations describing a general economic equilibrium model (see Woodford in Interest and Prices, Foundations of a Theory of Monetary Policy, The MIT Press, 2003), as it results from the optimizing behavior of the private agents, we provide a nonlinear model for the monetary policy analysis. This kind of model is a candidate for the existence of multiple equilibria, with a dependence of exogenous sunspots. We explore the stability of such a model combined with interest rate rules in order to investigate the determinacy of the model and we find, for some policy and elasticity parameters, the conditions under which it is possible.

Keywords: Monetary policy; Nonlinear models; Determinacy; Sunspots (search for similar items in EconPapers)
JEL-codes: C62 E52 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2010-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Published in Review of Economics, March 2010, pages nn1-nn2

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