Comparing forecast-based and backward-looking Taylor rules
Subtitle: a "global" analysis
By: Stefano Eusepi.
Contributors: Federal Reserve Bank of New York.
Series: Staff reports ;; no. 198; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 198.
Publisher: Federal Reserve Bank of New York
Published: 2005
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Taylor's rule.; Monetary policy -- Mathematical models; Inflation (Finance)
Description: "This paper examines the performance of forecast-based nonlinear Taylor rules in a class of simple microfunded models.  The paper shows that even if the policy rule leads to a locally determinate (and stable) inflation target, there exist other learnable 'global' equilibria such as cycles and sunspots.  Moreover, under learning dynamics, the economy can fall into a liquidity trap.  By contrast, more backward-looking and 'active' Taylor rules guarantee that the unique learnable equilibrium is the inflation target.  This result is robust to different specifications of the role of money, price stickiness, and the trading environment"--Federal Reserve Bank of New York web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 2/15/2005.
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Mode of access: World Wide Web.