Determinacy, Learnability, and Monetary Policy Inertia

Kaushik Mitra and James Bullard

No 04/14, Royal Holloway, University of London: Discussion Papers in Economics from Department of Economics, Royal Holloway University of London

Abstract: We document that monetary policy inertia can help alleviate problems of indeterminacy and non-existence of stationary equilibrium observed for some commonly-studied monetary policy rules. We also find that inertia promotes learnability of equilibrium. The context is a simple, forward-looking model of the macroeconomy widely used in the rapidly expanding literature in this area. We conclude that this might be an important reason why central banks in the industrialized economies display considerable inertia when adjusting monetary policy in response to changing economic conditions.

Keywords: Monetary policy rules; determinacy; learning; instrument instability. (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2004-07, Revised 2004-07
New Economics Papers: this item is included in nep-mac and nep-mon
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Related works:
Journal Article: Determinacy, Learnability, and Monetary Policy Inertia (2007)
Working Paper: Determinacy, learnability, and monetary policy inertia (2003)
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