Since 2014
The Unpleasant Arithmetic of the Taylor Rule
Journal of Business Theory and Practice
View Archive Info| Field | Value | |
| Title |
The Unpleasant Arithmetic of the Taylor Rule
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| Creator |
Rodriguez-Arana, Alejandro
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| Description |
This paper analyzes the effect of a monetary policy that raises the reference interest rate in order to reduce inflation in a situation where the fiscal policy parameters remain constant. In an overlapping generation’s model and in the presence of an accelerationist Phillips curve and a Taylor rule of interest rates, it is observed that increasing the independent component of said rule leads to a solution that at least in a large number of cases is unstable. In the case where the elasticity of substitution is greater than one, inflation falls temporarily, but then it can increase in an unstable manner. One way to achieve stability is to establish an interest rate rule where Taylor’s principle is not met. However, in this case many times the increase in the independent component of this rule will generate greater long-term inflation.
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| Publisher |
SCHOLINK INC.
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| Contributor |
—
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| Date |
2020-08-26
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| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion Peer-reviewed Article |
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| Format |
application/pdf
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| Identifier |
http://www.scholink.org/ojs/index.php/jbtp/article/view/3188
10.22158/jbtp.v8n3p89 |
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| Source |
Journal of Business Theory and Practice; Vol 8, No 3 (2020); p89
2329-2644 2372-9759 |
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| Language |
eng
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| Relation |
http://www.scholink.org/ojs/index.php/jbtp/article/view/3188/3220
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| Rights |
Copyright (c) 2020 Alejandro Rodriguez-Arana
http://creativecommons.org/licenses/by/4.0 |
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