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Monetary Policy and Equilibrium Indeterminacy in a Cash-in-Advance Economy with Investment

Chong Yip and Ka Fai Li

Economics Bulletin, 2004, vol. 5, issue 2, 1-7

Abstract: In a cash-in-advance economy where cash is required in advance of purchasing both consumption and investment goods, we find that active interest rate rules generate equilibrium uniqueness, but passive rules can lead to real indeterminacy. Simulation shows that even in the presence of investment, passive rules are very likely to render indeterminacy.

Keywords: indeterminacy (search for similar items in EconPapers)
JEL-codes: E5 O4 (search for similar items in EconPapers)
Date: 2004-01-15
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