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Interest Rate Rules (interest + rate_rule)
Selected AbstractsInterest rate rules and global determinacy: An alternative to the Taylor principleINTERNATIONAL JOURNAL OF ECONOMIC THEORY, Issue 4 2009Jean-Pascal Bénassy E43; E52; E58; E62; E63 A well-known determinacy condition on interest rate rules is the "Taylor principle," which states that nominal interest rates should respond more than 100 percent to inflation. Unfortunately, notably because interest rates must be positive, the Taylor principle cannot be satisfied for all interest rates, and as a consequence global determinacy may not prevail even though there exists a locally determinate equilibrium. We propose here a simple alternative to the Taylor principle, which takes the form of a new condition on interest rate rules that ensures global determinacy. An important feature of the policy package is that it does not rely at all on any of the fiscal policies associated with the "fiscal theory of the price level," which has so far been the main alternative for determinacy. [source] The Taylor Rule and Dynamic Stability in a Small Macroeconomic ModelECONOMIC NOTES, Issue 3 2003David Chappell In this paper, we embed the Taylor interest rate rule in a simple macroeconomic model with Calvo contracts. We contrast this with the case in which the interest rate is determined by the conventional LM curve along with a fixed value for the monetary aggregate. We derive conditions under which the adjustment of the economy is characterized by a unique saddle,path and show that the conditions required for this to be the case are more stringent when the authorities adopt the Taylor rule. In both cases, the possible failure of the saddle,path condition arises when there are debt,deflation effects in the IS curve. If interest rates are set according to the Taylor rule, then debt,deflation is always enough to cause the failure of the saddle,path condition. However, when interest rates are determined by the LM curve then it is possible that the real balance effect from the LM curve may offset the debt,deflation effect and produce a saddle,path. (J.E.L. E4, E5). [source] Interest rate rules and global determinacy: An alternative to the Taylor principleINTERNATIONAL JOURNAL OF ECONOMIC THEORY, Issue 4 2009Jean-Pascal Bénassy E43; E52; E58; E62; E63 A well-known determinacy condition on interest rate rules is the "Taylor principle," which states that nominal interest rates should respond more than 100 percent to inflation. Unfortunately, notably because interest rates must be positive, the Taylor principle cannot be satisfied for all interest rates, and as a consequence global determinacy may not prevail even though there exists a locally determinate equilibrium. We propose here a simple alternative to the Taylor principle, which takes the form of a new condition on interest rate rules that ensures global determinacy. An important feature of the policy package is that it does not rely at all on any of the fiscal policies associated with the "fiscal theory of the price level," which has so far been the main alternative for determinacy. [source] Credit Spreads and Monetary PolicyJOURNAL OF MONEY, CREDIT AND BANKING, Issue 2010VASCO CÚRDIA credit frictions; interest rate rules; Taylor rules We consider the desirability of modifying a standard Taylor rule for interest rate policy to incorporate adjustments for measures of financial conditions. We consider the consequences of such adjustments for the way policy would respond to a variety of disturbances, using the dynamic stochastic general equilibrium model with credit frictions developed in Cúrdia and Woodford (2009a). According to our model, an adjustment for variations in credit spreads can improve upon the standard Taylor rule, but the optimal size of adjustment depends on the source of the variation in credit spreads. A response to the quantity of credit is less likely to be helpful. [source] Simple Monetary Rules under Fiscal DominanceJOURNAL OF MONEY, CREDIT AND BANKING, Issue 1 2010MICHAEL KUMHOF optimal simple policy rules; fiscal dominance This paper asks whether interest rate rules that respond aggressively to inflation, following the Taylor principle, are feasible in countries that suffer from fiscal dominance. We find that if interest rates are allowed to also respond to government debt, they can produce unique equilibria. But such equilibria are associated with extremely volatile inflation. The resulting frequent violations of the zero lower bound make such rules infeasible. Even within the set of feasible rules the welfare optimizing response to inflation is highly negative. The welfare gain from responding to government debt is minimal compared to the gain from eliminating fiscal dominance. [source] The Cost of Nominal Rigidity in NNS ModelsJOURNAL OF MONEY, CREDIT AND BANKING, Issue 7 2007MATTHEW B. CANZONERI cost of nominal rigidity We present a model with Calvo wage and price setting, capital formation, and estimated rules for government spending and monetary policy. Our model captures many aspects of U.S. data, including the volatility that has been observed in various efficiency gaps. We estimate the cost of nominal rigidity,welfare under flexible wages and prices minus welfare with nominal rigidities,to be as much as 3% of consumption each period. Since there are interest rate rules that virtually eliminate this cost, our model suggests that,contrary to Lucas's (2003) assertion,there is considerable room for improvement in demand management policy. [source] | ||||||||||