Escapist policy rules

We study a simple, microfounded macroeconomic system in which the monetary authority employs a Taylor-type policy rule. We analyze situations in which the self-confirming equilibrium is unique and learnable according to 
We study a simple, microfounded macroeconomic system in which the monetary authority employs a Taylor-type policy rule. We analyze situations in which the self-confirming equilibrium is unique and learnable according to Bullard and Mitra (2002). We explore the prospects for the use of 'large deviation' theory in this context, as employed by Sargent (1999) and Cho, Williams, and Sargent (2002). We show that our system can sometimes depart from the self-confirming equilibrium towards a non-equilibrium outcome characterized by persistently low nominal interest rates and persistently low inflation. Thus we generate events that have some of the properties of "liquidity traps" observed in the data, even though the policymaker remains committed to a Taylor-type policy rule which otherwise has desirable stabilization properties.
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Metadaten
Author:James Bullard, In-Koo Cho
URN:urn:nbn:de:hebis:30-10431
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2003,38
Series (Serial Number):CFS working paper series (2003, 38)
Document Type:Working Paper
Language:English
Year of Completion:2003
Year of first Publication:2003
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:escape dynamics; learning; monetary policy rules
Issue:This version: 14 October 2003
HeBIS PPN:210785292
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:D83 Search; Learning; Information and Knowledge; Communication; Belief
D84 Expectations; Speculations
E32 Business Fluctuations; Cycles
E52 Monetary Policy
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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