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Book Cover
Author Airaudo, Marco, author

Title Learning about inflation measures for interest rate rules / prepared by Marco Airaudo and Luis-Felipe Zanna
Published [Washington, D.C.] : International Monetary Fund, [2010]
Online access available from:
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Description 1 online resource (45 pages) : color illustrations
Series IMF working paper ; WP/10/296
IMF working paper ; WP/10/296
Summary Empirical evidence suggests that goods are highly heterogeneous with respect to the degree of price rigidity. We develop a DSGE model featuring heterogeneous nominal rigidities across two sectors to study the equilibrium determinacy and stability under adaptive learning for interest rate rules that respond to inflation measures differing in their degree of price stickiness. We find that rules responding to headline inflation measures that assign a positive weight to the inflation of the sector with low price stickiness are more prone to generate macroeconomic instability than rules that respond exclusively to the inflation of the sector with high price stickiness. By this we mean that they are more prone to induce nonlearnable fundamental-driven equilibria, learnable self-fulfilling expectations equilibria, and equilibria where fluctuations are unbounded. We discuss how our results depend on the elasticity of substitution across goods, the degree of heterogeneity in price rigidity, as well as on the timing of the rule
Notes "December 2010."
At head of title: Research Department
Available in PDF, ePUB, and Mobi formats on the Internet
Title from PDF title page (IMF Web site, viewed March 14, 2011)
Bibliography Includes bibliographical references (pages 43-45)
Subject Inflation (Finance) -- Econometric models.
Interest rates -- Econometric models.
Monetary policy -- Econometric models.
Prices -- Econometric models.
Form Electronic book
Author Zanna, Luis-Felipe, author
International Monetary Fund. Research Department, issuing body
ISBN 1283554763