English, Article, Journal or magazine article edition: Investment and Monetary Policy: Learning and Determinacy of Equilibrium John Duffy; Wei Xiao

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Investment and Monetary Policy: Learning and Determinacy of Equilibrium
Author
  • John Duffy
  • Wei Xiao
Physical Description
  • preprint
Notes
  • We examine determinancy and expectational stability (learnability) of rational expectations equilibrium (REE) in sticky price New Keynesian (NK) models of the monetary transmission mechanism. We consider three different New Keynesian models: a labor-only model and two models that add capital -- one where capital is allocated in an economy-wide rental market and another where demand for capital is firm-specific. We find that Bullard and Mitra's (2002, 2007) findings on determinacy and learnability of REE under various interest rate rules in the labor-only NK model do not always extend to models with capital. In particular, the Taylor principle, that the response of interest rates should be more than proportionate to changes in inflation, will not generally suffice to guarantee determinate and/​or learnable equilibria in NK models with capital.
  • RePEc:pit:wpaper:324
Language
  • English
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