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Title:Trend Inflation, Taylor Principle and Indeterminacy PDF Logo
Authors:Ascari, Guido
Ropele, Tiziano
Issue Date:2007
Series/Report no.:Kieler Arbeitspapiere 1332
Abstract:We show that low trend in‡ation strongly a¤ects the dynamics of a standard Neo-Keynesian model where monetary policy is described by a standard Taylor rule. Moreover, trend in‡ation enlarges the indeterminacy region in the parameter space, substantially altering the so-called Taylor principle. The main results hold for di¤erent types of Taylor rules, inertial policy rules and indexation schemes. The key message is that, whatever the set up, the literature on Taylor rules cannot disregard average in‡ation in both theoretical and empirical analysis.
Subjects:Sticky Prices
Taylor Rules and Trend Inflation
JEL:E52
E31
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
Kieler Arbeitspapiere, IfW

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