Arbeitspapier
Determinacy in new Keynesian models: A role for money after all?
The New-Keynesian Taylor-Rule model of inflation determination with no role for money is incomplete. As Cochrane (2007a) argues, it has no credible mechanism for ruling out bubbles and as a result fails to provide a reason for private agents to pick a unique stable path. We propose a way forward. Our proposal is in effect that the New-Keynesian model should be formulated with a money demand and money supply function. It should also embody a terminal condition for money supply behaviour. If an unstable path occurred the central bank would switch to a money supply Rule explicitly designed to stop it via the terminal condition. This would be therefore a threat/trigger strategy complementing the Taylor Rule - only to be invoked if inflation misbehaved. Thus we answer the criticisms levelled at the Taylor Rule that it has no credible mechanism for ruling out bubbles. However it does imply that money cannot be avoided in the new Keynesian set-up, contrary to Woodford (2008).
- Language
-
Englisch
- Bibliographic citation
-
Series: Cardiff Economics Working Papers ; No. E2009/21
- Classification
-
Wirtschaft
Price Level; Inflation; Deflation
Monetary Policy
Central Banks and Their Policies
- Subject
-
New-Keynesian
Taylor Rule
Determinacy
Geldpolitik
Taylor-Regel
Geldangebot
Geldnachfrage
Inflationsrate
Bubbles
Neukeynesianische Makroökonomik
Geldtheorie
- Event
-
Geistige Schöpfung
- (who)
-
Minford, Patrick
Srinivasan, Naveen
- Event
-
Veröffentlichung
- (who)
-
Cardiff University, Cardiff Business School
- (where)
-
Cardiff
- (when)
-
2009
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Minford, Patrick
- Srinivasan, Naveen
- Cardiff University, Cardiff Business School
Time of origin
- 2009
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