Real indeterminacy in monetary models with nominal interest rate distortions: the problem with inflation targets

Charles Carlstrom and Timothy Fuerst

No 9818R, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: This paper demonstrates that in a standard monetary model with a cash-in-advance constraint on consumption there exists real indeterminacy whenever the nominal interest rate moves too closely with the real rate. A particular example of such a policy is an inflation rate target. This is not a knife-edge result. The conclusion is robust to a wide range of calibrations and to a monetary environment that allows for endogenous velocity.

Keywords: Monetary policy; Inflation (Finance) (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (5)

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Journal Article: Real Indeterminacy in Monetary Models with Nominal Interest Rate Distortions (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:9818

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DOI: 10.26509/frbc-wp-199818R

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