Alternative monetary policy rules and expectational consistency

Carlos Iwai Drumond, Cleiton Silva Jesus (), João Basilio Pereima () and Hiroyuki Yoshida ()
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Cleiton Silva Jesus: State University of Feira de Santana (UEFS)
João Basilio Pereima: Federal University of Paraná
Hiroyuki Yoshida: Nihon University

Evolutionary and Institutional Economics Review, 2022, vol. 19, issue 1, No 14, 319-341

Abstract: Abstract We build a macroeconomic model that allows for non-linearity in the interest rate rule. We assume that to determine the rate of interest, the monetary authority considers the interaction between the actual inflation and the capacity utilization, so that the sensitivity of the interest rule to the inflation gap varies in accordance with the business cycle. The macroeconomic policy framework we propose enables the monetary authority to give as much weight to inflation as to the product without losing sight of the expected anchor role of the inflation target, for a closed economy as well as for an open economy.

Keywords: Macroeconomic dynamics; Non-linear interest rate rule; Expectational consistency (search for similar items in EconPapers)
JEL-codes: E10 E12 E52 E58 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40844-021-00208-2

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