Performance of inflation targeting based on constant interest rate projections

  • Monetary policy is sometimes formulated in terms of a target level of inflation, a fixed time horizon and a constant interest rate that is anticipated to achieve the target at the specified horizon. These requirements lead to constant interest rate (CIR)instrument rules. Using the standard New Keynesian model, it is shown that some forms of CIR policy lead to both indeterminacy of equilibria and instability under adaptive learning. However, some other forms of CIR policy perform better. We also examine the properties of the different policy rules in the presence of inertial demand and price behaviour.

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Metadaten
Author:Seppo Honkapohja, Kaushik Mitra
URN:urn:nbn:de:hebis:30-10441
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2003,39
Series (Serial Number):CFS working paper series (2003, 39)
Document Type:Working Paper
Language:English
Year of Completion:2003
Year of first Publication:2003
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:indeterminacy; inertia in demand; inflation inertia; inflation targeting; instability under learning
HeBIS-PPN:204008182
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht