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Money growth rules and price level determinacy

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  • Charles T. Carlstrom
  • Timothy S. Fuerst

Abstract

The authors show that in a plausibly calibrated monetary model with explicit production, exogenous money growth rules ensure real determinacy and thus avoid sunspot fluctuations. Although it is theoretically possible to construct examples in which real indeterminacy does arise, these examples rely on implausible money-demand elasticities or ignore the effect of production on the model?s dynamics.

Suggested Citation

  • Charles T. Carlstrom & Timothy S. Fuerst, 2000. "Money growth rules and price level determinacy," Working Papers (Old Series) 0010, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:0010
    DOI: 10.26509/frbc-wp-200010
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    1. Michener, Ronald & Ravikumar, B., 1998. "Chaotic dynamics in a cash-in-advance economy," Journal of Economic Dynamics and Control, Elsevier, vol. 22(7), pages 1117-1137, May.
    2. 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.
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    4. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 345-380.
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    Keywords

    Demand for money; Monetary policy;

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