Determinacy, Learnability, and Monetary Policy Inertia |
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| Authors: | JAMES BULLARD,KAUSHIK MITRA&dagger |
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| Affiliation: | James Bullard;is from the Research Department at Federal Reserve Bank of St. Louis (E-mail:) . Kaushik Mitra;is from Department of Economics at Royal Holloway College, University of London (E-mail:). |
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| Abstract: | 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. |
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| Keywords: | E4 E5 |
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