Taylor Rules in Practice: How Central Banks can Intercept Sunspot Expectations

Mark Weder

No 3899, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper derives new results on the effects of employing Taylor rules in economies that are subject to real-market imperfections such as production externalities. It suggests that rules that should be avoided (chosen) in perfect-markets environments do in fact ensure (yield) unique (multiple) rational expectations solutions in alternative settings. Therefore, exact knowledge on the degree of market imperfection is pivotal for robust policy advice.

Keywords: Indeterminacy; Increasing returns-to-scale; Taylor rules; Cash-in-advance economies (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Date: 2003-05
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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