Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/200573
Authors: 
Campbell, Jeffrey R.
Weber, Jacob P.
Year of Publication: 
2018
Series/Report no.: 
Working Paper 2018-03
Abstract: 
We examine the standard New Keynesian economy's Ramsey problem written in terms of instrument settings instead of allocations. Its standard formulation makes two instruments available: the path of current and future interest rates, and an "open mouth operation" which selects one of the many equilibria consistent with the chosen interest rates. Removing the open mouth operation by imposing a finite commitment horizon yields pathological policy advice that relies on the model's forward guidance puzzle.
Subjects: 
Equilibrium Multiplicity
Monetary Policy
JEL: 
E12
E52
Document Type: 
Working Paper
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