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http://ssrn.com/abstract=423310
 
 

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Multiple-Solution Indeterminacies in Monetary Policy Analysis


Bennett T. McCallum


Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

July 2003

NBER Working Paper No. w9837

Abstract:     
This paper discusses four current topics in monetary policy analysis, each of which hinges on the possibility of multiple solutions in rational expectations (RE) models. In three of these cases--involving inflation forecast targeting, the zero-lower bound deflation trap, and the fiscal theory of the price level--analysis based on E-stability and adaptive learnability of the solutions suggests that only one of them is a viable equilibrium candidate. Thus the dangers alleged to prevail, in these cases, are not ones with which actual policymakers need to be concerned. In the case of the Taylor principle, by contrast, policy behavior that violates the principle is genuinely undesirable, since all of the RE equilibria fail to be learnable.

Number of Pages in PDF File: 39

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Date posted: July 14, 2003  

Suggested Citation

McCallum, Bennett T., Multiple-Solution Indeterminacies in Monetary Policy Analysis (July 2003). NBER Working Paper No. w9837. Available at SSRN: http://ssrn.com/abstract=423310

Contact Information

Bennett T. McCallum (Contact Author)
Carnegie Mellon University - David A. Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-2347 (Phone)
412-268-7357 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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