Anchoring expectations of inflation

Michael Magill and Martine Quinzii

Journal of Mathematical Economics, 2014, vol. 50, issue C, 86-105

Abstract: This paper studies the existence and uniqueness of equilibrium in a monetary model in which the fiscal policy is Ricardian. The innovation of the paper is to model agents’ expectations as endogenous probabilities which are determined in equilibrium. Since economies with a Ricardian fiscal policy typically exhibit indeterminacy of equilibrium when the monetary policy instrument is the short-term interest rate, we augment the instruments of monetary policy to the interest rates on a family of bonds of maturities 1,…,T and derive conditions under which this ensures uniqueness of equilibrium.

Keywords: Inflation; Expectations; Determinacy; Interest rates (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:50:y:2014:i:c:p:86-105

DOI: 10.1016/j.jmateco.2013.06.003

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