Money growth rules as stabilization policies in open economies

Author: Weder, Mark

Source: International Economic Journal, Volume 22, Number 4, December 2008 , pp. 525-537(13)

Publisher: Routledge, part of the Taylor & Francis Group

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Abstract:

High degrees of relative risk aversion induces indeterminacy in cash-in-advance economies. In a small open economy context, this paper finds that endogenous money growth rules can pre-empt such sunspot equilibria in an open economy context. The most promising candidates are policies that actively target past inflation movements or aggregate demand as well as the expected price level.

Keywords: cash-in-advance economies; Taylor rules; sunspot equilibria

Document Type: Research article

DOI: http://dx.doi.org/10.1080/10168730802497635

Affiliations: 1: School of Economics, University of Adelaide, Australia

Publication date: 2008-12-01