Bounded Interest Rate Feedback Rules in Continuous-Time
Hippolyte d'Albis (),
Emmanuelle Augeraud-Véron () and
Hermen Jan Hupkes
MPRA Paper from University Library of Munich, Germany
This paper analyses 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: Interest Rate Rules; Indeterminacy; Functionnal Equations (search for similar items in EconPapers)
JEL-codes: E31 E43 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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https://mpra.ub.uni-muenchen.de/45424/1/MPRA_paper_45424.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/49969/1/MPRA_paper_45424.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/52145/1/MPRA_paper_52145.pdf revised version (application/pdf)
Journal Article: Bounded interest rate feedback rules in continuous-time (2014)
Working Paper: Bounded interest rate feedback rules in continuous-time (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:45424
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