We explore the long-run implications of adopting a Taylor-type interest-rate rule in a simple monetary growth model in which budget deficits are financed partly by unbacked government debt. Because monetary policy is accommodative only when it is passive, the Taylor principle, which requires...

This paper studies a strategic bargaining model of money and prices to complement the results reported in Coles and Wright (1998). The probability of a bargaining breakdown is chosen to be consistent with market conditions in the spirit of Rubinstein and Wolinsky (1985). The unique monetary...

The prevailing models of liquidity traps suggest that a deflationary trap is a stable steady state in a multiple equilibria model. These models implicitly assume that the central bank accelerates the process of disinflation by following a Taylor rule even though there is a long run positive...