Resource title

Taylor Rules and Macroeconomic Instability or How the Central Bank Can Pre-empt Sunspot Expectations

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Resource description

This paper derives new results on the effects of employing Taylor rules in economies that are subject to real market imperfections such as production externalities. Taylor rules that aggressively respond to output can eliminate sunspot equilibria that arise from the increasing returns. The paper also finds that rules which should be chosen (avoided) in perfect market environments often yield (ensure) multiple (unique) rational expectations solutions in alternative settings. Therefore, exact knowledge on the degree of market imperfection may be pivotal for robust policy advice.

Resource author

Mark Weder

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22263

Resource license

Adapt according to the presented license agreement and reference the original author.