Interest Rate Rules, Price Determinacy and the Value of Money in a non Ricardian World

Jean-Pascal Benassy ()

Review of Economic Dynamics, 2005, vol. 8, issue 3, pages 651-667

Abstract: This article studies under which conditions interest rate rules "à la Taylor" results, which are standard in the traditional "Ricardian" taxation, Financial constraints. single dynasty of consumers: (1) a pure interest rate peg leads to nominal price indeterminacy; (2) a strong reaction (usually more than one for one) of nominal interest rates to inflation is conducive to price determinacy (the Taylor principle). This article extends the analysis to rigorous dynamic non Ricardian models. The results turn out to be quite different, since notably prices may be determinate if the interest rate responds less than one for one to inflation, and even under a pure interest rate peg. (Copyright: Elsevier)

Keywords: Interest rate rules; Price determinacy; Monetary policy rules; Taylor principle; Interest rate peg; Pigou effect; Real balance effect. (search for similar items in EconPapers)
JEL-codes: E43 E50 E52 E58 (search for similar items in EconPapers)
Date: 2005
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