This article presents a dynamic stochastic new Keynesian model with real balance effects. I find a number of results that would not appear in the traditional framework. It is shown that the real balance effect makes the so-called Taylor principle not necessary for determinacy of rational expectations equilibrium and that “passive” monetary rules may be feasible. In addition, within a class of policy rules constrained to be a linear function of state variables, “active” interest rate rules are more likely to be optimal under commitment rather than under discretion.
Piergallini, A. (2006). Real balance effects and monetary policy. ECONOMIC INQUIRY, 44(3), 497-511 [10.1093/ei/cbj029].
Real balance effects and monetary policy
PIERGALLINI, ALESSANDRO
2006-07-01
Abstract
This article presents a dynamic stochastic new Keynesian model with real balance effects. I find a number of results that would not appear in the traditional framework. It is shown that the real balance effect makes the so-called Taylor principle not necessary for determinacy of rational expectations equilibrium and that “passive” monetary rules may be feasible. In addition, within a class of policy rules constrained to be a linear function of state variables, “active” interest rate rules are more likely to be optimal under commitment rather than under discretion.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.