Chaotic interest rate rules
Subtitle: expanded version
By: Jess Benhabib, Stephanie Schmitt-Grohe, Martin Uribe.
Contributors: Schmitt-Grohe, Stephanie.; Uribe, Martin.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10272; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10272.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Monetary policy -- Econometric models.; Interest rates -- Econometric models.; Inflation (Finance) -- Econometric models.
Description: "A growing empirical and theoretical literature argues in favor of specifying monetary policy in the form of Taylor-type interest rate feedback rules.  That is, rules whereby the nominal interest rate is set as an increasing function of inflation with a slope greater than one around an intended inflation target.  This paper shows that such rules can easily lead to chaotic dynamics.  The result is obtained for feedback rules that depend on contemporaneous or expected future inflation.  The existence of chaotic dynamics is established analytically and numerically in the context of calibrated economies.  The battery of fiscal policies that has recently been advocated for avoiding global indeterminacy induced by Taylor-type interest-rate rules (such as liquidity traps) are shown to be unlikely to provide a remedy for the complex dynamics characterized in this paper"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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