of monetary policy. We use a stylized macro model of Howitt (1992) to investigate inflation dynamics under alternative … interest rate in response to inflation. In particular, if the monetary authority only responds weakly to inflation, a … cumulative process with rising inflation is likely. On the other hand, a Taylor interest rate rule that sets the interest rate …

, consumption, investment and unemployment) has a distinct dynamic from disagreement about nominal variables (inflation and interest … nominal series. Country-by-country regressions for inflation and interest rates reveal that both the level of disagreement and …