The natural rate hypothesis and real determinacy

Alexander Meyer-Gohde

No 2008-054, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: The uniqueness of bounded local equilibria under interest rate rules is analyzed in a model with sticky information à la Mankiw and Reis (2002). The main results are tighter bounds on monetary policy than in sticky-price models, irrelevance of the degree of output-gap targeting for determinacy, independence of determinacy regions from parameters outside the interest-rate rule, and equivalence between real determinacy in models satisfying the natural rate hypothesis and nominal determinacy in the associated full-information, flex-price equivalent. The analysis follows from boundedness considerations on the nonautonomous recursion that describe the MA(∞) representation of variables' reaction to endogenous fluctuations.

Keywords: Nonautonomous difference equations; indeterminacy; Taylor rule; sticky information; sticky prices (search for similar items in EconPapers)
JEL-codes: C62 E31 E52 E58 E61 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2008-054

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