Real Indeterminacy in Monetary Models with Nominal Interest Rate Distortions

Charles Carlstrom and Timothy Fuerst

Review of Economic Dynamics, 2001, vol. 4, issue 4, 767-789

Abstract: This paper demonstrates that in a standard flexible-price monetary model there exists real indeterminacy whenever the nominal interest rate moves too closely with either current or forecasted inflation. However, an aggressive response to lagged inflation will ensure determinacy. These conclusions are robust to a wide range of calibrations, and a monetary environment that allows for endogenous velocity. The results are affected by the inclusion of investment spending in the transactions constraint. (Copyright: Elsevier)

Keywords: money and interest rates; monetary policy and central banking (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (42)

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Working Paper: Real indeterminacy in monetary models with nominal interest rate distortions: the problem with inflation targets (2001)
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DOI: 10.1006/redy.2001.0137

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