Trend Inflation, Taylor Principle and Indeterminacy

Guido Ascari and Tiziano Ropele

No 93, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: In this paper, we show that low trend inflation strongly affects the dynamics of a standard Neo-keynesian model where monetary policy is described by a standard Taylor rule. In particular, we show that trend inflation: (i) enlarges the indeterminacy region in the parameter space, substantially altering the so-called Taylor principle; (ii) changes the dynamic responses of the economy. Furthermore, we generalize the basic analysis to different types of Taylor rules, inertial policy rules and indexation schemes. The key point is that, whatever the set up, the literature on Taylor rules cannot disregard average inflation in both theoretical and empirical analysis.

Keywords: Sticky Prices; Taylor Rules and Trend Inflation (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2005-10, Revised 2005-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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http://repec.dems.unimib.it/repec/pdf/mibwpaper93.pdf First version, 2005 (application/pdf)

Related works:
Journal Article: Trend Inflation, Taylor Principle, and Indeterminacy (2009)
Journal Article: Trend Inflation, Taylor Principle, and Indeterminacy (2009)
Working Paper: Trend inflation, Taylor principle and indeterminacy (2009)
Working Paper: Trend Inflation, Taylor Principle and Indeterminacy (2009)
Working Paper: Trend Inflation, Taylor Principle and Indeterminacy (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:93

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