Learning about monetary policy rules when the cost-channel mattersLuis-Gonzalo Llosa () and Vicente Tuesta Journal of Economic Dynamics and Control, 2009, vol. 33, issue 11, pages 1880-1896 Abstract: We study how monetary policy may affect determinacy and expectational stability (E-stability) of rational expectations equilibrium when the cost channel of monetary policy matters. Focusing on instrumental Taylor-type rules and optimal target rules, we show that standard policies can induce indeterminacy and expectational instability when the cost channel is present. A naïve application of the traditional Taylor principle could be misleading, and expectations-based reaction function under discretion does not always induce determinate and E-stable equilibrium. This result contrasts with the findings of Bullard and Mitra [2002. Learning about monetary policy rules. Journal of Monetary Economics 49, 1105-1129] and Evans and Honkapohja [2003. Expectations and stability problem for optimal monetary policies. Review of Economic Studies 70, 807-824] for the standard new Keynesian model. The ability of the central bank to commit to an optimal policy is an antidote to these problems. Keywords: Learning; Monetary; policy; rules; Cost; channel; Indeterminacy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:eee:dyncon:v:33:y:2009:i:11:p:1880-1896 Access Statistics for this article Journal of Economic Dynamics and Control is edited by J. Bullard, C. Chiarella, C. H. Hommes, P. N. Ireland, T. Cogley and M. Juillard More articles in Journal of Economic Dynamics and Control from Elsevier |
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