Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Cleveland
Working Papers (Old Series)
Taylor rules in a model that satisfies the natural rate hypothesis
Charles T. Carlstrom
Timothy S. Fuerst
Abstract

The authors analyze the restrictions necessary to ensure that the interest-rate policy rule used by the central bank does not introduce real indeterminacy into the economy. They conduct this analysis in a flexible price economy and a sticky price model that satisfies the natural rate hypothesis. A necessary and sufficient condition for real determinacy in the sticky price model is that there must be nominal and real determinacy in the corresponding flexible price model. This arises if and only if the Taylor rule responds aggressively to lagged inflation rates.


Download Full text
Cite this item
Charles T. Carlstrom & Timothy S. Fuerst, Taylor rules in a model that satisfies the natural rate hypothesis, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 0116, 2001.
More from this series
JEL Classification:
Subject headings:
Keywords: Monetary policy ; Interest rates
For corrections, contact 4D Library ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal