Working Paper
Determinacy, learnability, and monetary policy inertia
Abstract: We document that monetary policy inertia can help alleviate problems of indeterminacy and non-existence of stationary equilibrium observed for some commonly-studied monetary policy rules. We also find that inertia promotes learnability of equilibrium. The context is a simple, forward-looking model of the macroeconomy widely used in the rapidly expanding literature in this area. We conclude that this might be an important reason why central banks in the industrialized economies display considerable inertia when adjusting monetary policy in response to changing economic conditions.
Keywords: Monetary policy; Monetary theory;
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Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2003
Number: 2000-030