MACROECONOMIC (IN)STABILITY OF INTEREST RATE RULES IN A MODEL WITH BANKING SYSTEM AND RESERVE MARKETS

Shu-Hua Chen

Macroeconomic Dynamics, 2015, vol. 19, issue 7, 1476-1508

Abstract: This paper develops a general equilibrium model with a banking system and a reserves market and shows that (i) the macroeconomic stabilizing properties of the nominal interest rate rules change quite substantially when we move from a model without a banking system to one with a banking system and a reserves market; (ii) the interplay between fiscal and monetary policies, in particular inflation-indexed versus non-indexed bonds, is crucial in determining the macroeconomic stabilizing properties of monetary rules; (iii) active rules and passive rules perform equally in regard to their macroeconomic stabilizing properties; (iv) continuous- and discrete-time specifications deliver the same/different (in)determinacy results for both the labor-only model and the endogenous-capital model under forward-looking/current-looking rules; (v) the inclusion of physical investment narrows the indeterminacy region under forward-looking rules; and (vi) current-looking rules make equilibrium determinacy impossible for both the labor-only economy and the endogenous-capital economy. Economic intuitions are provided.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
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:cup:macdyn:v:19:y:2015:i:07:p:1476-1508_00

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().