Interest Rate Rules and Transitional Dynamics in an Endogenously Growing Open Economy

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Title:	Interest Rate Rules and Transitional Dynamics in an Endogenously Growing Open Economy
Authors:	Shaw, Ming-fu;Chen, Shu-hua;Lai, Ching-chong;Chang, Juin-jen
Contributors:	淡江大學產業經濟學系
Keywords:	Interest-rate rules;Gradualism;Endogenous growth
Date:	2006-02
Issue Date:	2011-10-15 11:27:04 (UTC+8)
Abstract:	This paper sets up an endogenous growth model of an open economy in which the monetary authority implements a gradualist interest-rate rule with targets for both inflation and economic growth. We show that, under a passive rule, a monetary equilibrium exists and is unique. Moreover, the equilibrium is locally determinate. By contrast, an active rule implies either two equilibria, one high-growth and one low-growth, or none. In the case of two equilibria, the high-growth equilibrium is locally determinate, while the low-growth equilibrium is a source. Besides, the stabilization and growth effects of alternative target policies are also explored in this study. Moreover, in departing from the existing literature, we turn to focus on the analysis of transition with a particular emphasis on the case of imperfect credibility.
Relation:	Journal of International Money and Finance 27(1), pp.54-75
DOI:	10.1016/j.jimonfin.2007.09.009
Appears in Collections:	[Graduate Institute & Department of Industrial Economics] Journal Article

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