This paper proves that a higher inflation target unanchors expectations, as feared by Fed Chairman Bernanke. It does so both asymptotically, because it shrinks the E-stability region when a central bank follows a Taylor rule, and in the transition phase, because it slows down the speed of...

What are the effects of a higher inflation target on the determinacy properties under alternative monetary/fiscal policy mixes in New Keynesian models? Would it be more difficult for the central bank to stabilize inflation expectations if the inflation target is raised? What role for central...

We study monetary policy in a New Keynesian (NK) model with endogenous growth and knowledge spillovers external to each firm. We find the following results: (i) technology and government spending shocks have different effects on growth; (ii) disinflationary monetary policies entail positive...

We combine an estimated monetary policy rule featuring time-varying trend inflation and stochastic coefficients with a medium scale New Keynesian framework calibrated on the U.S. economy. We find the impact of variations in trend inflation on the likelihood of equilibrium determinacy to be both...