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On the Determinacy of Monetary Steady States: Disequilibrium Learning and Optimal Monetary Policy

Author

Listed:
  • L.R. de Mello Jr.
  • J.R. Faria

Abstract

The paper identifies the sources of indeterminacy of monetary steady states in a model of optimum supply of money in which the government maximises revenue through seignorage subject to an underlying inflationary process. We show that the determination of the monetary expansion path is sensitive to the specification of the disequilibrium learning rule and is subject to informational problems. Determinacy is ensured under a specific learning rule, which combines elements of adaptive and rational expectations and is self-corrective. The solution provides an optimal monetary policy which combines zero inflation, positive money and balanced budget.

Suggested Citation

  • L.R. de Mello Jr. & J.R. Faria, 1996. "On the Determinacy of Monetary Steady States: Disequilibrium Learning and Optimal Monetary Policy," Studies in Economics 9607, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:9607
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    More about this item

    Keywords

    Multiple Equilibria; Seignorage; Money Supply; Disequilibrium Learning;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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