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Optimal monetary policy and determinacy under active/passive regimes

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  • Roulleau-Pasdeloup, Jordan

Abstract

Should one expect inflation to be stable when monetary policy is passive? According to the workhorse model for monetary policy analysis, the answer should be no if the passive spell is too long. In this paper, I develop a New Keynesian model in which monetary policy is optimal subject to a loose commitment constraint. I show that there is a threshold degree of commitment such that the equilibrium is locally unique when monetary policy switches between active and passive stances, regardless of the length of the passive spell. This result also holds for a version of the model where the passive spell is endogenous and due to a demand shock driving the economy to the Zero Lower Bound.

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  • Roulleau-Pasdeloup, Jordan, 2020. "Optimal monetary policy and determinacy under active/passive regimes," European Economic Review, Elsevier, vol. 130(C).
    • Handle: RePEc:eee:eecrev:v:130:y:2020:i:c:s0014292120302129
    DOI: 10.1016/j.euroecorev.2020.103582
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    Cited by:

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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