Indeterminacy with Inflation-Forecast-Based Rules in a Two-Bloc Model

Nicoletta Batini, Paul Levine () and Joseph Pearlman

No 204, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: We examine the performance of forward-looking inflation-forecast-based rules in open economies. In a New Keynesian two-bloc model, a methodology first employed by Batini and Pearlman (2002) is used to obtain analytically the feedback parameters/horizon pairs associated with unique and stable equilibria. Three key findings emerge: first, indeterminacy occurs for any value of the feedback parameter on inflation if the forecast horizon lies too far into the future. Second, the problem of indeterminacy is intrinsically more serious in the open economy. Third, the problem is compounded further in the open economy when central banks respond to expected consumer, rather than producer price inflation.

Keywords: Taylor rules; inflation-forecast-based rules; indeterminacy; open economy (search for similar items in EconPapers)
JEL-codes: E37 E52 E58 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2004-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Related works:
Working Paper: Indeterminacy with inflation-forecast-based rules in a two-bloc model (2004)
Working Paper: Indeterminacy with inflation-forecast-based rules in a two-bloc model (2004)
Journal Article: Indeterminacy with inflation-forecast-cased rules in a two-bloc model (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:0204

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