Monetary Policy with State Contingent Interest Rates

Bernardino Adao () and Pedro Teles

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: What instruments of monetary policy must be used in order to implement a unique equilibrium? This paper revisits the issues addressed by Sargent and Wallace (1975) on the multiplicity of equilibria when policy isconducted with interest rate rules. We show that the appropriate interestrate instruments under uncertainty are state-contingent interest rates, i.e. the nominal returns on state-contingent nominal assets. A policy that pegs state-contingent nominal interest rates, and sets the initial money supply, implements a unique equilibrium. These results hold whether prices are flexible or set in advance.

JEL-codes: E31 E40 E52 E58 E62 E63 (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.bportugal.pt/sites/default/files/anexos/papers/wp200418.pdf

Related works:
Working Paper: Monetary Policy with State Contingent Interest Rates (2009)
Working Paper: Monetary policy with state contingent interest rates (2004)
Working Paper: Monetary Policy with State Contingent Interest Rates (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w200418

Access Statistics for this paper

More papers in Working Papers from Banco de Portugal, Economics and Research Department Contact information at EDIRC.
Bibliographic data for series maintained by DEE-NTD ().