Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209866 
Year of Publication: 
2006
Series/Report no.: 
Working Paper No. 2006/3
Publisher: 
Norges Bank, Oslo
Abstract: 
We consider standard monetary-policy rules with inflation-rate targets and interest-rate or money-growth instruments using a flexible-price, perfect foresight model. There is always a locally-unique target equilibrium. There are also below-target equilibria (BTE) with inflation always below target and constant or asymptotically approaching or eventually reaching a below-target value. Liquidity traps are neither necessary nor sufficient for BTE which can arise if monetary policy keeps the interest rate above a lower bound. We construct monetary-policy rules, that preclude BTE, some of which are monotonic in inflation but all of which are non-differentiable at a point. For standard monetary-policy rules there are plausible fiscal policies that insure uniqueness by precluding BTE; those policies exclude perpetual surpluses and, possibly, perpetual balanced budgets.
Subjects: 
zero bound
liquidity trap
inflation targeting
determinacy
JEL: 
E31
E41
E52
E62
Persistent Identifier of the first edition: 
ISBN: 
82-7553-350-3
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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