Indeterminacy with inflation-forecast-based rules in a two-bloc model

Nicoletta Batini, Paul Levine () and Joseph Pearlman

No 797, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We examine the performance of forward-looking inflation-forecast-based rules in open economies. In a New Keynesian two-bloc model, a methodology first employed by Batini and Pearlman (2002) is used to obtain analytically the feedback parameters/horizon pairs associated with unique and stable equilibria. Three key findings emerge: First, indeterminacy occurs for any value of the feedback parameter on inflation if the forecast horizon lies too far into the future. Second, the problem of indeterminacy is intrinsically more serious in the open economy. Third, the problem is compounded further in the open economy when central banks respond to expected consumer, rather than producer price inflation.

Keywords: Inflation (Finance); Forecasting (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (20)

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Related works:
Working Paper: Indeterminacy with inflation-forecast-based rules in a two-bloc model (2004)
Working Paper: Indeterminacy with Inflation-Forecast-Based Rules in a Two-Bloc Model (2004)
Journal Article: Indeterminacy with inflation-forecast-cased rules in a two-bloc model (2003)
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