Bounded interest rate feedback rules in continuous-time

Hippolyte d'Albis, Emmanuelle Augeraud-Véron and Hermen Jan Hupkes

Journal of Economic Dynamics and Control, 2014, vol. 39, issue C, 227-236

Abstract: This paper analyzes the dynamic consequences of interest rate feedback rules in a flexible-price model where money enters the utility function. Two alternative rules are considered based on past or predicted inflation rates. The main feature is to consider inflation rates that are selected over a bounded time horizon. We prove that if the Central Bank's forecast horizon is not too long, an active and forward-looking monetary policy is not destabilizing: the equilibrium trajectory is unique and monotonic. This is an advantage with respect to active and backward-looking policies that are shown to lead to a unique but fluctuating dynamic.

Keywords: Interest rate rules; Indeterminacy; Functionnal equations (search for similar items in EconPapers)
JEL-codes: E31 E43 E52 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Bounded interest rate feedback rules in continuous-time (2014)
Working Paper: Bounded interest rate feedback rules in continuous-time (2014)
Working Paper: Bounded Interest Rate Feedback Rules in Continuous-Time (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:39:y:2014:i:c:p:227-236

DOI: 10.1016/j.jedc.2013.12.002

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