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Title:Monetary policy, determinacy, and the natural rate hypothesis PDF Logo
Authors:Meyer-Gohde, Alexander
Issue Date:2011
Series/Report no.:SFB 649 discussion paper 2011-049
Abstract:Imposing the natural rate hypothesis (NRH) can dramatically alter the determinacy bounds on monetary policy by closing the output gap in the long run. I show that the hypothesis eliminates any role for the output gap in determinacy and renders the conditions for determinacy identical for all conforming supply equations. Specializing further to IS demand, determinacy depends only on the parameters in the interest rate rule and a pure forward or backward-looking inflation target is inconsistent with determinacy. Monetary policy that embodies the Taylor principle with respect to contemporaneous inflation delivers a determinate equilibrium in all models that satisfy the NRH.
Subjects:determinacy
natural rate hypothesis
Phillips curve
Taylor Principle
JEL:C62
E31
E43
E52
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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