Monetary policy, Taylor´s Rule and Endogenous Fluctuations
The paper analyses the dynamic behaviour of an economy when the central bank (CB) implements an inflation targeting regime. For this purpose, a simple macroeconomic model is constructed and subjected to formal dynamic analysis. A first result is that, under certain conditions, the emergence of endogenous oscillations in the economy is a possible scenario. A second implication is that CBs face two main policy dilemmas: (i) the degree of gradualism adopted when setting the level of short-term interest rates and (ii) the desirability or otherwise of raising interest rates as soon as economic indicators suggest the emergence of inflationary pressures.
Year of publication: |
1999
|
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Authors: | González, Luis Alberto Alonso ; Palacio-Vera, Alfonso |
Institutions: | Facultad de Ciencias Económicas y Empresariales, Universidad Complutense de Madrid |
Saved in:
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