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Rule-of-thumb consumers and the design of interest rate rules

Jordi Gali (), David López Salido () and Javier Valles
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David López Salido: Banco de España

Authors registered in the RePEc Author Service: J. David Lopez-Salido ()

No 320, Working Papers from Banco de España, Working Papers Homepage

Abstract: We introduce rule-of-thumb consumers in an otherwise standard dynamic sticky price model, and show how their presence can change dramatically the properties of widely used interest rate rules. In particular, the existence of a unique equilibrium is no longer guaranteed by an interest rate rule that satisfies the so called Taylor principle. Our findings call for caution when using estimates of interest rate rules in order to assess the merits of monetary policy in specific historical periods.

Keywords: Taylor principle; interest rate rules; sticky prices; rule-of-thumb consumers (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2003-12
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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/03/Fic/dt0320e.pdf First version, January 2004 (application/pdf)

Related works:
Working Paper: Rule-of-Thumb Consumers and the Design of Interest Rate Rules (2004) Downloads
Working Paper: Rule-of-Thumb Consumers and the Design of Interest Rate Rules (2004) Downloads
Working Paper: Rule-of-Thumb Consumers and the Design of Interest Rate Rules (2003) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0320

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