Monetary Policy and Multiple Equilibria

Stephanie Schmitt-Grohe, Jess Benhabib and Martín Uribe ()

American Economic Review, 2001, vol. 91, issue 1, 167-186

Abstract: This paper characterizes conditions under which interest-rate feedback rules that set the nominal interest rate as an increasing function of the inflation rate induce aggregate instability by generating multiple equilibria. It shows that these conditions depend not only on the monetary-fiscal regime (as emphasized in the fiscal theory of the price level) but also on the way in which money is assumed to enter preferences and technology. It provides a number of examples in which, contrary to what is commonly believed, active monetary policy gives rise to multiple equilibria and passive monetary policy renders the equilibrium unique.

JEL-codes: E31 E52 E63 (search for similar items in EconPapers)
Date: 2001
Note: DOI: 10.1257/aer.91.1.167
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Citations: View citations in EconPapers (344)

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Related works:
Working Paper: Monetary Policy and Multiple Equilibria (1999)
Working Paper: Monetary Policy and Multiple Equilibria (1999)
Working Paper: Monetary Policy and Multiple Equilibria (1998)
Working Paper: Monetary policy and multiple equilibria (1998)
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