Determinacy and learnability of equilibrium in a small-open economy with sticky wages and prices

Eurilton Araújo

International Review of Economics & Finance, 2016, vol. 45, issue C, 16-32

Abstract: In a small-open economy model with nominal wage and price rigidities, it has been argued that, in terms of welfare losses, the monetary policy rule that responds to consumer price index (CPI) inflation performs better than rules that react to competing inflation measures. From the viewpoint of determinacy and learnability of rational expectations equilibrium (REE), this paper suggests that the rule that responds to CPI inflation does not increase the Central Bank's ability to promote the convergence of an economy to a determinate and learnable REE nor improves the speed of this convergence when compared with rules that react to contending inflation measures.

Keywords: Determinacy; Inflation; Learnability; Monetary policy rules (search for similar items in EconPapers)
JEL-codes: E13 E31 E52 F41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Determinacy and Learnability of Equilibrium in a Small Open Economy with Sticky Wages and Prices (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:45:y:2016:i:c:p:16-32

DOI: 10.1016/j.iref.2016.04.014

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