Constant Interest Rate Projections without the Curse of Indeterminacy

11 Pages Posted: 7 Nov 2007

See all articles by Jordi Galí

Jordi Galí

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: August 2007

Abstract

Constant interest rate (CIR) projections are often criticized on the grounds that they are inconsistent with the existence of a unique equilibrium in a variety of forward-looking models. This note shows how to construct CIR projections that are not subject to that criticism, using a standard New Keynesian model as a reference framework.

Keywords: Interest rate peg, inflation targeting, conditional forecasts, interest rate rules, multiple equilibria

JEL Classification: E37, E58

Suggested Citation

Gali, Jordi, Constant Interest Rate Projections without the Curse of Indeterminacy (August 2007). Available at SSRN: https://ssrn.com/abstract=1028223 or http://dx.doi.org/10.2139/ssrn.1028223

Jordi Gali (Contact Author)

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain
+34 93 542 2754 (Phone)
+34 93 542 1746 (Fax)

HOME PAGE: http://www.econ.upf.es/~gali

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Cambridge, MA 02142
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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