Determinacy, Learnability, and Monetary Policy Inertia

James Bullard, Kaushik Mitra

Research output: Contribution to journalArticlepeer-review

44 Citations (Scopus)

Abstract

We show how monetary policy inertia can help alleviate problems of indeterminacy and non‐existence of stationary equilibrium observed for some commonly studied monetary policy rules. We also find that inertia promotes learnability of equilibrium. The context is a simple, forward‐looking model of the macroeconomy widely used in the rapidly expanding literature in this area. We conclude that this might be an important reason why central banks in the industrialized economies display considerable inertia when adjusting monetary policy in response to changing economic conditions.
Original languageEnglish
Pages (from-to)1177-1212
JournalJournal of Money, Credit and Banking
Volume39
Issue number5
Early online date25 Jul 2007
DOIs
Publication statusPublished - Aug 2007

Keywords

  • E4
  • E5
  • monetary policy rules
  • determinacy
  • learning
  • instrument instability

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