Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152774
Authors: 
Batini, Nicoletta
Levine, Paul
Pearlman, Joseph G.
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper 340
Abstract: 
We examine the performance of forward-looking inflation-forecast-based rules in open economies. In a New Keynesian two-bloc model, a methodology first employed by Batini and Pearlman (2002) is used to obtain analytically the feedback parameters/horizon pairs associated with unique and stable equilibria. Three key findings emerge: first, indeterminacy occurs for any value of the feedback parameter on inflation if the forecast horizon lies too far into the future. Second, the problem of indeterminacy is intrinsically more serious in the open economy. Third, the problem is compounded further in the open economy when central banks respond to expected consumer, rather than pro- ducer price inflation.
Subjects: 
in°ation-forecast-based rules
indeterminacy
open economy
Taylor rules
JEL: 
E52
E37
E58
Document Type: 
Working Paper

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