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Alternative monetary policy rules and expectational consistency

Author

Listed:
  • Carlos Eduardo Iwai Drumond

    (State University of Santa Cruz (UESC))

  • Cleiton Silva Jesus

    (State University of Feira de Santana (UEFS))

  • João Basilio Pereima

    (Federal University of Paraná)

  • Hiroyuki Yoshida

    (Nihon University)

Abstract

We build a macroeconomic model that allows for non-linearity in the interest rate rule. We assume that to determine the rate of interest, the monetary authority considers the interaction between the actual inflation and the capacity utilization, so that the sensitivity of the interest rule to the inflation gap varies in accordance with the business cycle. The macroeconomic policy framework we propose enables the monetary authority to give as much weight to inflation as to the product without losing sight of the expected anchor role of the inflation target, for a closed economy as well as for an open economy.

Suggested Citation

  • Carlos Eduardo Iwai Drumond & Cleiton Silva Jesus & João Basilio Pereima & Hiroyuki Yoshida, 2022. "Alternative monetary policy rules and expectational consistency," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 319-341, April.
    • Handle: RePEc:spr:eaiere:v:19:y:2022:i:1:d:10.1007_s40844-021-00208-2
    DOI: 10.1007/s40844-021-00208-2
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    References listed on IDEAS

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    Cited by:

    1. Hiroaki Sasaki, 2022. "Special feature: economic dynamics—growth, capital, labor, technology, and money," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 159-167, April.

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    More about this item

    Keywords

    Macroeconomic dynamics; Non-linear interest rate rule; Expectational consistency;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • 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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