Taylor rules and equilibrium determinacy in a two-country model with non-traded goods |
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| Institution: | 1. Department of Economics, University of Vermont, 94 University Place, Burlington, VT 05405, USA;2. Université d''Angers, GRANEM, Faculté de droit, d''économie et de gestion, 13 allée François Mitterrand, BP 13633, 49036 Angers Cedex 01, Angers, France;1. Washington University, St. Louis, USA;2. Federal Reserve Bank of St. Louis, USA;3. University of Milan, Department of Economics, Management, and Quantitative Methods, Italy;1. Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan;2. Department of Accounting Information, National Taichung University of Science and Technology, Taichung, Taiwan;3. Department of Risk Management and Insurance, Feng Chia University, Taichung, Taiwan |
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| Abstract: | We analyze a relation between interest rate controls and equilibrium determinacy using a two-country model featuring traded and non-traded goods. In addition, parameters of preference and production may differ between the two countries. We find that macroeconomic stability strongly depends on such heterogeneity including monetary policy, and that it is easier to generate determinate equilibrium under perfect liberalization of the economy, but to operate monetary policy in the economy with non-traded goods. |
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