Learning about Monetary Policy Rules when the Cost Channel Matters
Luis-Gonzalo Llosa () and
Vicente Tuesta ()
No 2007-014, Working Papers from Banco Central de Reserva del Perú
We study how the stability of rational expectations equilibrium may be affected by monetary policy when agents learn using adaptive learning (E-stability concept) and the cost channel of monetary policy matters. We focus on both instrumental taylor-type rules and optimal rules. We show, analytically, that standard instrument rules -contemporaneous and forecast based rules - can easily induce indeterminacy and expectational instability when the cost channel is present. Overall, a naive application of the Taylor principle in this setting could be misleading. Regarding optimal rules, we find that "expectational-based" rules, under discretion and commitment, do not always induce determinate and E-stable equilibrium. This result stands in contrast to the findings of Evans and Honkapohja (2003) for for the baseline “New Keynessian" model.
Keywords: Monetary Policy Rules; Cost Channel; Indeterminacy (search for similar items in EconPapers)
JEL-codes: C23 O40 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Journal Article: Learning about monetary policy rules when the cost-channel matters (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:rbp:wpaper:2007-014
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