Money supply, macroeconomic stability, and the implementation of interest rate targets

Andreas Schabert ()

Journal of Macroeconomics, 2009, vol. 31, issue 2, pages 333-344

Abstract: In this paper the relation between interest rate targets and money supply is analysed in a standard macroeconomic framework with frictionless financial markets and sticky prices. Money supplies are examined that implement equilibrium sequences satisfying forward-looking interest rate targets. An interest rate target with a positive inflation feedback in general corresponds to an accommodating money supply, i.e., money growth rates rising with inflation. It is shown that interest rate targets (like a Taylor-rule), which are consistent with a unique equilibrium, cannot be implemented by money growth rules.

Keywords: Interest; rate; targets; Money; supply; Money; growth; rates; Equilibrium; determinacy; Policy; equivalence (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:jmacro:v:31:y:2009:i:2:p:333-344

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