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Bounded interest rate feedback rules in continuous-time

Hippolyte d'Albis (), Emmanuelle Augeraud-Véron () and Hermen Jan Hupkes ()
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Hermen Jan Hupkes: Mathematical institute - Universiteit Leiden [Leiden]

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Abstract: This paper analyzes the dynamic consequences of interest rate feedback rules in a flexible-price model where money enters the utility function. Two alternative rules are considered based on past or predicted inflation rates. The main feature is to consider inflation rates that are selected over a bounded time horizon. We prove that if the Central Bank's forecast horizon is not too long, an active and forward-looking monetary policy is not destabilizing: the equilibrium trajectory is unique and monotonic. This is an advantage with respect to active and backward-looking policies that are shown to lead to a unique but fluctuating dynamic.

Keywords: Functionnal equations; Interest rate rules; Indeterminacy (search for similar items in EconPapers)
Date: 2014-02
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01015388
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Published in Journal of Economic Dynamics and Control, Elsevier, 2014, 39, pp.227-236. ⟨10.1016/j.jedc.2013.12.002⟩

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Journal Article: Bounded interest rate feedback rules in continuous-time (2014) Downloads
Working Paper: Bounded Interest Rate Feedback Rules in Continuous-Time (2013) Downloads
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