Price Level Determinacy under a Pure Interest Rate Peg |
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| Affiliation: | 1. Department of Pathology, The University of Melbourne, Parkville, Victoria 3010, Australia;2. Department of Physiology, The University of Melbourne, Parkville, Victoria 3010, Australia;3. The Walter and Eliza Hall Institute of Medical Research, Parkville, Victoria 3052, Australia;4. CNRS, UMR-5203, Institut de Génomique Fonctionnelle, F-34000 Montpellier, France;5. INSERM, U1191, F-34000 Montpellier, France;6. Universités de Montpellier, F-34000 Montpellier, France;7. Department of Medical Biology, The University of Melbourne, Parkville, Victoria 3010, Australia;8. Drug Discovery Biology, Monash Institute of Pharmaceutical Sciences, Monash University, Parkville, Victoria 3052, Australia;1. Drug Delivery, Disposition and Dynamics, Monash Institute of Pharmaceutical Sciences, Monash University, Parkville, Victoria 3052, Australia;2. ARC Centre of Excellence in Convergent Bio-Nano Science and Technology, Monash Institute of Pharmaceutical Sciences, Monash University, Parkville, Victoria 3052, Australia;3. Medicinal Chemistry, Monash Institute of Pharmaceutical Sciences, Monash University, Parkville, Victoria 3052, Australia;1. Robert Wood Johnson Clinical Scholars Program, University of Michigan, 2800 Plymouth Road, Building 10, RM G016, Ann Arbor, MI 48109, USA;2. Department of Orthopaedic Surgery, Brigham and Women''s Hospital, Harvard Medical School, 75 Francis St, Boston, MA 02115, USA;3. Center for Healthcare Outcome and Policy, University of Michigan, 2800 Plymouth Rd, Building 16, Ann Arbor, MI 48109, USA;1. School of Pharmaceutical Science, Jiangnan University, 1800 Lihu Road, Wuxi, Jiangsu Province 214122, PR China;2. School of Life Science, Anhui University, 111 Jiulong Road, Hefei, Anhui Province 230601, PR China;3. Department of Biomedical Engineering, University of Minnesota, 7-105 Hasselmo Hall, 312 Church Street S. E., Minneapolis, MN 55455, USA;1. University of Padova, Department of Chemical Sciences, Via F. Marzolo 1, 35131 Padova, Italy;2. CNR Neuroscience Institute, Viale G. Colombo 3, 35121 Padova, Italy;3. University of Padova, Department of Biomedical Sciences, Viale G. Colombo 3, 35121 Padova, Italy |
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| Abstract: | In this article we reexamine a famous result by T. J. Sargent and N. Wallace (1975, Journal of Political Economy83, 241–254) according to which a “pure interest rate peg” leads to nominal price indeterminacy. We use P. Weil's (1991, International Economic Review32, 37–53) generalization of the Sidrauski–Brock model, where arrival of new “generations” of infinitely lived agents is allowed, and we obtain the following results: (i) Nominal indeterminacy holds in the traditional Sidrauski–Brock framework; (ii) This nominal indeterminacy disappears as soon as new generations arrive in time, via some rigorous version of Patinkin's “real balance effect”; (iii) A multiplicity of solutions may still remain, but full determinacy occurs in some cases, depending notably on fiscal policy or the distribution of endowments in time. Journal of Economic Literature Classification Numbers: E4, E5 |
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