Any views expressed are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of St. Louis or the Federal Reserve System. We thank Mike Woodford and two anonymous referees for very helpful comments.
Determinacy, Learnability, and Monetary Policy Inertia
Article first published online: 25 JUL 2007
Journal of Money, Credit and Banking
Volume 39, Issue 5, pages 1177–1212, August 2007
How to Cite
BULLARD, J. and MITRA, K. (2007), Determinacy, Learnability, and Monetary Policy Inertia. Journal of Money, Credit and Banking, 39: 1177–1212. doi: 10.1111/j.1538-4616.2007.00062.x
- Issue published online: 25 JUL 2007
- Article first published online: 25 JUL 2007
- Received March 12, 2005; and accepted in revised form December 14, 2005.
- monetary policy rules;
- instrument instability
We show how monetary policy inertia can help alleviate problems of indeterminacy and non-existence of stationary equilibrium observed for some commonly studied monetary policy rules. We also find that inertia promotes learnability of equilibrium. The context is a simple, forward-looking model of the macroeconomy widely used in the rapidly expanding literature in this area. We conclude that this might be an important reason why central banks in the industrialized economies display considerable inertia when adjusting monetary policy in response to changing economic conditions.