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Determinacy, Learnability, and Monetary Policy Inertia
Author(s) -
BULLARD JAMES,
MITRA KAUSHIK
Publication year - 2007
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2007.00062.x
Subject(s) - learnability , determinacy , monetary policy , economics , inertia , indeterminacy (philosophy) , context (archaeology) , simple (philosophy) , macroeconomics , keynesian economics , monetary economics , computer science , mathematics , geography , physics , mathematical analysis , philosophy , archaeology , epistemology , classical mechanics , machine learning , quantum mechanics
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.