Investment and Interest Rate Policy: A Discrete Time Analysis
28 Pages Posted: 2 Nov 2007
Date Written: December 2003
Abstract
This paper analyzes the restrictions necessary to ensure that the interest rate policy rule used by the central bank does not introduce local real indeterminacy into the economy. It conducts the analysis in a Calvo-style sticky price model. A key innovation is to add investment spending to the analysis. In this environment, local real indeterminacy is much more likely. In particular, all forward-looking interest rate rules are subject to real indeterminacy.
Keywords: interest rates, monetary policy, central banking
JEL Classification: E4, E5
Suggested Citation: Suggested Citation
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