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Forward-looking versus backward-looking Taylor rules

Charles Carlstrom and Timothy Fuerst

No 9, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: This paper analyzes the restrictions necessary to ensure that the policy rule used by the central bank does not introduce real indeterminacy into the economy. It conducts this analysis in a flexible price economy and a sticky price model. A robust conclusion is that to ensure determinacy, the monetary authority should follow a backward-looking rule where the nominal interest rate responds aggressively to past inflation rates.

Keywords: Monetary; policy (search for similar items in EconPapers)
Date: 2000, Revised 2000
New Economics Papers: this item is included in nep-mon
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