Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098981 | Journal of Economic Dynamics and Control | 2012 | 19 Pages |
Abstract
We present an extensive analysis of the consequences for global equilibrium determinacy in flexible-price open economies of implementing active interest rate rules, i.e., monetary rules where the nominal interest rate responds more than proportionally to inflation. We show that conditions under which these rules generate aggregate instability by inducing liquidity traps, endogenous cycles, and chaotic dynamics depend on specific characteristics of open economies. In particular, rules that respond to expected future inflation are more prone to induce endogenous cyclical and chaotic dynamics the more open the economy to trade.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Marco Airaudo, Luis-Felipe Zanna,