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Real Indeterminacy in Monetary Models with Nominal Interest Rate Distortions

Author

Listed:
  • Charles T. Carlstrom

    (Federal Reserve Bank of Cleveland)

  • Timothy S. Fuerst

    (Bowling Green State University)

Abstract

This paper demonstrates that in a standard flexible-price monetary model there exists real indeterminacy whenever the nominal interest rate moves too closely with either current or forecasted inflation. However, an aggressive response to lagged inflation will ensure determinacy. These conclusions are robust to a wide range of calibrations, and a monetary environment that allows for endogenous velocity. The results are affected by the inclusion of investment spending in the transactions constraint. (Copyright: Elsevier)

Suggested Citation

  • Charles T. Carlstrom & Timothy S. Fuerst, 2001. "Real Indeterminacy in Monetary Models with Nominal Interest Rate Distortions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(4), pages 767-789, October.
    • Handle: RePEc:red:issued:v:4:y:2001:i:4:p:767-789
    DOI: 10.1006/redy.2001.0137
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    References listed on IDEAS

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    More about this item

    Keywords

    money and interest rates; monetary policy and central banking;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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