Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25400
Authors: 
Honkapohja, Seppo
Mitra, Kaushik
Year of Publication: 
2003
Series/Report no.: 
CFS Working Paper 2003/39
Abstract: 
Monetary policy is sometimes formulated in terms of a target level of inflation, a fixed time horizon and a constant interest rate that is anticipated to achieve the target at the specified horizon. These requirements lead to constant interest rate (CIR)instrument rules. Using the standard New Keynesian model, it is shown that some forms of CIR policy lead to both indeterminacy of equilibria and instability under adaptive learning. However, some other forms of CIR policy perform better. We also examine the properties of the different policy rules in the presence of inertial demand and price behaviour.
Subjects: 
Indeterminacy
instability under learning
inflation targeting
inertia in demand
inflation inertia
JEL: 
E52
E61
E32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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