Monetary Rules, Determinacy and Limited Enforcement

Jean Barth Lemy and Eric Mengus
Authors registered in the RePEc Author Service: Jean Barthélemy

Working papers from Banque de France

Abstract: This paper investigates the ability of monetary policy rules to coordinate private agents' expectations when the enforcement of rules is limited. We show that limited enforcement precludes diverging inflation paths ensuring that nominal variables remain bounded in equilibrium. When applied to Taylor rules this makes the Taylor principle necessary and sufficient for price determinacy. However, limited enforcement also allows agents to rationally anticipate multiple policies and we show that, in general, there is no policy rule able to recoordinate any private agents' belief on that rule. We finally provide conditions under which such recoordination may take place.

Keywords: Policy Rules; Determinacy; Limited Enforcement. (search for similar items in EconPapers)
JEL-codes: E31 E52 E65 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2018
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Working Paper: Monetary Rules, Determinacy and Limited Enforcement (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:700

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