Robust real rate rules

Tom D. Holden

No 42/2022, Discussion Papers from Deutsche Bundesbank

Abstract: Central banks wish to avoid self-fulfilling fluctuations. Monetary rules with a unit response to real rates achieve this under the weakest possible assumptions about the behaviour of households and firms. They are robust to household heterogeneity, hand-to-mouth consumers, non-rational household/firm expectations, active fiscal policy, missing transversality conditions and to any form of intertemporal or nominal-real links. They are easy to employ in practice, using inflation protected bonds to infer real rates. With a time-varying inflation target, they can implement arbitrary inflation dynamics, including optimal policy. They work thanks to the key role played by the Fisher equation in monetary transmission.

Keywords: robust monetary rules; determinacy; Taylor principle; inflation dynamics; monetary transmission mechanism (search for similar items in EconPapers)
JEL-codes: E31 E43 E52 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/266677/1/182443958X.pdf (application/pdf)

Related works:
Journal Article: Robust Real Rate Rules (2024)
Working Paper: Robust Real Rate Rules (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:422022

Access Statistics for this paper

More papers in Discussion Papers from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().