English, Article, Journal or magazine article edition: Firm-Specific Investment, Sticky Prices, and the Taylor Principle Tommy Sveen; Lutz Weinke

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Firm-Specific Investment, Sticky Prices, and the Taylor Principle
Author
  • Tommy Sveen
  • Lutz Weinke
Physical Description
  • preprint
Notes
  • According to the Taylor principle a central bank should adjust the nominal interest rate by more than one-for-one in response to changes in current inflation. Most of the existing literature supports the view that by following this simple recommendation a central bank can avoid being a source of unnecessary fluctuations in economic activity. The present paper shows that this conclusion is not robust with respect to the modelling of capital accumulation. We use our insights to discuss the desirability of alternative interest rate rules. Our results suggest a reinterpretation of monetary policy under Volcker and Greenspan: The empirically plausible characterization of monetary policy can explain the stabilization of macroeconomic outcomes observed in the early eighties for the US economy. The Taylor principle in itself cannot.
  • Sticky prices, aggregate investment, monetary policy
  • RePEc:upf:upfgen:780
  • According to the Taylor principle a central bank should adjust the nominal interest rate by more than one for one in response to changes in current in?ation. Most of the existing literature supports the view that by following this simple recommendation a central bank can avoid being a source of unnecessary ?uctuations in economic activity. The present paper shows that this conclusion is not robust with respect to the modelling of capital accumulation. We use our insights to discuss the desirability of alternative arrangements for the conduct of monetary policy.
  • international banking, portfolio diversification, international integration
  • RePEc:bno:worpap:2004_12
Language
  • English
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