Do Real Balance Effects Invalidate the Taylor Principle in Closed and Open Economies
Bibliographic Data
| ID | 9727091 |
|---|---|
| Authors | Stephen McKnight (0000-0003-0669-1511, El Colegio de México), Alexander Mihailov (0000-0003-4307-4029, University of Reading) |
| Year | 2015 |
| Volume | 82 |
| Issue | 328 |
| Pages | 938-975 |
| Publication date | 2015-10-01 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | Economica (JOURNAL) |
| Journal identifiers | ISSN: 0013-0427 • E-ISSN: 1468-0335 |
| Publisher | Wiley (PUBLISHER • GB) |
| DOI | 10.1111/ecca.12134 |
| OpenAlex | W2044021714 |
| Language | EN |
| References cited | 57 |
This paper examines the determinacy implications of forecast‐based monetary policy rules that set the interest rate in response to expected future inflation in a Neo‐Wicksellian model that incorporates real balance effects. We show that the presence of such effects in closed economies restricts the ability of the Taylor principle to prevent indeterminacy of the rational expectations equilibrium. The problem is exacerbated in open economies, particularly if the policy rule reacts to consumer‐price, rather than domestic‐price, inflation. However, determinacy can be restored in both closed and open economies with the addition of monetary policy inertia
Balance (ability) · Central bank · Determinacy · Economics · Exchange rate · Indeterminacy (philosophy) · Inflation (cosmology) · Interest rate · Keynesian economics · Macroeconomics · Monetary economics · Monetary policy · Open economy · Small open economy · Taylor rule · Economic theories and models · Economic Theory and Policy · Monetary Policy and Economic Impact
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Inflation forecast targeting
Monetary Policy Rules and Macroeconomic Stability
The Science of Monetary Policy
Staggered prices in a utility-maximizing framework
Monetary policy rules in practice
Monetary Policy Rules Based on Real-Time Data
Determinacy and Identification with Taylor Rules
Should Central Banks Target Consumer Prices or the Exchange Rate
The Classical Stationary State
Employment and Equilibrium--A Theoretical Discussion
Money in an Estimated Business Cycle Model of the Euro Area
| Citation velocity | historical |
|---|---|
| Highly cited | No |