Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/266677 
Authors: 
Year of Publication: 
2022
Series/Report no.: 
Deutsche Bundesbank Discussion Paper No. 42/2022
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
Central banks wish to avoid self-fulfilling fluctuations. Monetary rules with a unit response to real rates achieve this under the weakest possible assumptions about the behaviour of households and firms. They are robust to household heterogeneity, hand-to-mouth consumers, non-rational household/firm expectations, active fiscal policy, missing transversality conditions and to any form of intertemporal or nominal-real links. They are easy to employ in practice, using inflation protected bonds to infer real rates. With a time-varying inflation target, they can implement arbitrary inflation dynamics, including optimal policy. They work thanks to the key role played by the Fisher equation in monetary transmission.
Subjects: 
robust monetary rules
determinacy
Taylor principle
inflation dynamics
monetary transmission mechanism
JEL: 
E52
E43
E31
ISBN: 
978-3-95729-921-5
Document Type: 
Working Paper

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