feedback rule
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2018 ◽  
Vol 18 (2) ◽  
Author(s):  
Wen-ya Chang ◽  
Hsueh-fang Tsai ◽  
Juin-jen Chang ◽  
Hsieh-yu Lin

Abstract This study develops a small-open-economy version of Benhabib, J., S. Schmitt-Grohé, and M. Uribe. 2001. “Monetary Policy and Multiple Equilibria.” American Economic Review 91: 167–186. We systematically explore the role of international capital mobility and the portfolio balance channel in terms of macroeconomic (in)stability when the government follows a commonly-adopted interest-rate feedback rule. In a one-traded-good model, the steady-state equilibrium, in general, is locally determinate; international capital mobility stabilizes the economy against business cycle fluctuations under a simple interest-rate feedback rule. In a two-good (traded and non-traded goods) model, the relationship between equilibrium (in)determinacy and the aggressiveness of interest rate rules is not monotonic, and crucially depends on households’ portfolio preferences. These results suggest that a unified interest rate rule can end up with very different consequences of macroeconomic (in)stability in an open economy from those in a closed economy.


Author(s):  
Alexander Gegov ◽  
Farzad Arabikhan ◽  
David Sanders ◽  
Boriana Vatchova ◽  
Tanya Vasileva

2017 ◽  
Vol 23 (1) ◽  
pp. 29-51
Author(s):  
Ahmad Naimzada ◽  
Nicolò Pecora ◽  
Alessandro Spelta

This paper considers a pure exchange overlapping generations model in which the money-growth rate is endogenous and follows a feedback rule. Different specifications for the monetary policy rule are analyzed, namely a so-called current, forward, or backward-looking feedback rule, depending on whether the monetary authority uses the actual, expected, or last observed values of the inflation rate to set the monetary policy. We study how the responsiveness of the policy rule with respect to inflation affects the determinacy of the monetary equilibrium. A policy rule is called aggressive (moderate) if it responds strongly (moderately) to inflation deviations from the target. We show how aggressive feedback rules, depending on the considered timing, can reinforce mechanisms that lead to indeterminacy or may lead the inflation rate to fluctuate around the monetary equilibrium at which monetary policy is aggressive. Aleaning against the windpolicy seems to be more desirable from an equilibrium determinacy point of view. On the contrary, aleaning with the windpolicy could not be the recommended policy for the Central Bank.


2017 ◽  
Vol 22 (5) ◽  
pp. 1345-1369
Author(s):  
Stephen McKnight

Recent research has shown that forward-looking Taylor rules are subject to indeterminacy in New Keynesian models with capital and investment spending. This paper shows that adopting a forward-looking Wicksellian rule that responds to the price level, rather than to inflation, is one potential remedy for the indeterminacy problem. This result is shown to be robust to variations in both the labor supply elasticity and the degree of price stickiness, the inclusion of capital adjustments costs, and if output also enters into the interest-rate feedback rule. Finally, it is shown that the superiority of Wicksellian rules over Taylor rules is not only confined to forward-looking policy, but also extends to both backward-looking and contemporaneous-looking specifications of the monetary policy rule.


2017 ◽  
Vol 9 (1) ◽  
pp. 165-204 ◽  
Author(s):  
Stephanie Schmitt-Grohé ◽  
Martín Uribe

This paper proposes a model that explains the joint occurrence of liquidity traps and jobless growth recoveries. Its key elements are downward nominal wage rigidity, a Taylor-type interest rate feedback rule, the zero lower bound on nominal interest rates, and a confidence shock. Absent a change in policy, the model predicts that low inflation and high unemployment become chronic. With capital accumulation, the model predicts, in addition, an investment slump. The paper identifies a New Fisherian effect, whereby raising the nominal interest rate to its intended target for an extended period of time can boost inflationary expectations and thereby foster employment. (JEL E24, E31, E32, E43, E52, F44, G01)


2014 ◽  
Vol 19 (5) ◽  
pp. 1045-1073 ◽  
Author(s):  
Ansgar Rannenberg

We introduce skill decay during unemployment into a New Keynesian model with hiring frictions and real-wage rigidity. Plausible values of quarterly skill decay and real-wage rigidity turn the long-run marginal cost–unemployment relationship positive in a “European” labor market with little hiring but not in a fluid “American” one. If the marginal cost–unemployment relationship is positive, determinacy requires a passive response to inflation in the central bank's interest feedback rule if the rule features only inflation. Targeting steady-state output or unemployment helps to restore determinacy.


2014 ◽  
Vol 26 (1) ◽  
pp. 451-464 ◽  
Author(s):  
Alexander Gegov ◽  
David Sanders ◽  
Boriana Vatchova

2011 ◽  
Vol 24 (3) ◽  
pp. 365-382 ◽  
Author(s):  
FABIAN ZIMMERMANN ◽  
STEIN IVAR STEINSHAMN ◽  
MIKKO HEINO

Author(s):  
Pietro Cipresso ◽  
Jean-Marie Dembele ◽  
Marco Villamira

In this work, we present an analytical model of hyper-inflated economies and develop a computational model that permits us to consider expectations of the levels of future prices following emotional rules and strategies. We take into account communications among agents by adding a feedback rule. To consider emotions in agents, we use the Plutchik psycho-evolutionary theory of emotions to design an agent-based emotional architecture based on the attack-escape strategy. The computational model is based on a Barabàsi-Albert Network and considers the diffusion of information and the diffusion of emotions among agents.


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