Interest Rate Rules, Endogenous Cycles, and Chaotic Dynamics in Open Economies

Working Paper No. 12/121

We present an extensive analysis of the consequences for global equilibrium determinacy in flexible-price open economies of implementing active interest rate rules, i.e., monetary rules where the nominal interest rate responds more than proportionally to inflation. We show that conditions under which these rules generate aggregate instability by inducing liquidity traps, endogenous cycles, and chaotic dynamics depend on specific characteristics of open economies. In particular, rules that respond to expected future inflation are more prone to induce endogenous cyclical and chaotic dynamics the more open the economy to trade.
Publication date: May 2012
ISBN: 9781475503500
$18.00
Add to Cart by clicking price of the language and format you'd like to purchase
Available Languages and Formats
English
Prices in red indicate formats that are not yet available but are forthcoming.
Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Economics- Macroeconomics , Economics / General , International - Economics , Small Open Economy , Interest Rate Rules , Taylor Rules , Multiple Equilibria , Chaos , Cycles And Endogenous Fluctuations , Economic Models , Interest Rates , Real Effective Exchange Rates

Summary