Price Indeterminacy Reinvented: Pegging Interest Rates While Targeting Prices, Inflation, or Nominal Income

David Eagle

Macroeconomics from University Library of Munich, Germany

Abstract: Contrary to Sargent and Wallace (1975), a central bank’s use of an interest-rate instrument does determine prices when the central bank pursues either a short-term or long-term price target. However, in order for a central bank’s pursuit of a long-term price target to be credible, the public still needs something like a Taylor or McCallum-Woodford rule. The use of an interest-rate instrument also determines prices when the central bank targets nominal income in either the short-term or long-term. However, if the central bank targets interest rates in the short term with a long-term inflation target, then prices are indeterminate.

Keywords: price indeterminancy; pegging interest rates; inflation targeting; nominal-income targeting; nominal-aggregate-demand targeting; price-level targeting (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
Pages: 30 pages
Date: 2005-01-20
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: Type of Document - pdf; pages: 30
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0501028

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