Investment and Interest Rate Policy: A Discrete Time Analysis

Carlstrom, Charles T.; Fuerst, Timothy S.

doi:10.2139/ssrn.1026075

Cited by 38 publications

(105 citation statements)

References 11 publications

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“…This is shown in Figure 4. These findings are consistent with those reported by Carlstrom and Fuerst (2003).…”

supporting

confidence: 94%

“…His results are, however, extremely sensitive with respect to the choice of the capital adjustment cost parameter. Carlstrom and Fuerst (2003) find that forward-looking interest rate rules do generally not guarantee determinacy in a DNK model with capital accumulation. They do not challenge, however, the usefulness of the Taylor principle.…”

mentioning

confidence: 76%

“…6 Carlstrom and Fuerst (2003) note that 'if prices are extremely sticky' the Taylor principle is no longer sufficient for determinacy.…”

mentioning

confidence: 99%

See 2 more Smart Citations

Firm-Specific Investment, Sticky Prices, and the Taylor Principle

Sveen

Weinke²

2004

SSRN Journal

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According to the Taylor principle a central bank should adjust the nominal interest rate by more than one-for-one in response to changes in current inflation. Most of the existing literature supports the view that by following this simple recommendation a central bank can avoid being a source of unnecessary fluctuations in economic activity. The present paper shows that this conclusion is not robust with respect to the modelling of capital accumulation. We use our insights to discuss the desirability of alternative interest rate rules. Our results suggest a reinterpretation of monetary policy under Volcker and Greenspan: The empirically plausible characterization of monetary policy can explain the stabilization of macroeconomic outcomes observed in the early eighties for the US economy. The Taylor principle in itself cannot.

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“…This is shown in Figure 4. These findings are consistent with those reported by Carlstrom and Fuerst (2003).…”

supporting

confidence: 94%

mentioning

confidence: 76%

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Firm-Specific Investment, Sticky Prices, and the Taylor Principle

Sveen

Weinke²

2004

SSRN Journal

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“…The BG models do not address determinacy and learnability; they take both for granted (given the Taylor principle). Whereas the two issues have first been examined within the basic "labour-only" New Keynesian model, later works have extended analysis to models with fixed capital and endogenous investment, of which our model is a case (Carlstrom andFuerst 2005, Duffy andXiao 2011). They show that this feature may change the conclusions about determinacy and learnability drawn previously, in particular the Taylor Principle may no longer be sufficient.…”

Section: _________________________mentioning

confidence: 89%

Stock Prices and Monetary Policy: Re-examining the Issue in a New Keynesian Model with Endogenous Investment

Grossi

Tamborini

2012

Economics

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In this paper the authors present a New Keynesian quantitative model with endogenous investment and stock-market sector that may shed further light on two unsettled issues: whether central banks should include some financial indicator in their policy rules, and which indicator may be expected to generate better stabilization performance. For comparative purposes the authors replicate the policy framework and assessment strategy of the well-known 'no-inclusion' model of Bernanke-Gertler (Monetary Policy and Asset Price Volatility, 1999, and Should Central Banks Respond to Movements in Asset Prices? 2001). The performance of five policy rules is assessed. Two are 'traditional' Taylor rules (i.e. with no financial indicators) that differ in the relative weight on the output and inflation gaps. Three are 'financial' Taylor rules, that is, augmented with one financial indicator: the deviation from trend of stock prices, of Tobin's q (the rate of change stock prices relative to capital stock) and of investment. The authors show results that are at variance with Bernanke-Gertler. First, because among the traditional rules the best performing one is output aggressive instead of inflation aggressive. Second, because the financial rule with Tobin's q outperforms the traditional inflation-aggressive one under all dimensions and cases. However, the authors cannot draw a univocal conclusion as regards the comparison between the financial rule with Tobin's q and the traditional but output aggressive rule. JEL E5, E52

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“…The choices pertaining to the modeling of the variables' timing are particularly important in those models Fuerst, 2000, 2001), and recommendations may vary depending on whether a discreteor continuous-time representation is chosen (Dupor, 2001, Carlstrom and Fuerst, 2003, 2005. In this article, we study and extend a framework initially proposed by Benhabib (2004) that mix both representations.…”

Section: Introductionmentioning

confidence: 99%

Bounded interest rate feedback rules in continuous-time

d’Albis

Augeraud-Véron²,

Hupkes

2014

Journal of Economic Dynamics and Control

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This paper analyses the dynamic consequences of interest rate feedback rules in a flexible-price model where money enters the utility function. Two alternative rules are considered based on past or predicted inflation rates. The main feature is to consider inflation rates that are selected over a bounded time horizon. We prove that if the Central Bank's forecast horizon is not too long, an active and forward-looking monetary policy is not destabilizing: the equilibrium trajectory is unique and monotonic. This is an advantage with respect to active and backward-looking policies that are shown to lead to a unique but fluctuating dynamic. JEL Classification: E31, E43, E52.

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Investment and Interest Rate Policy: A Discrete Time Analysis

Cited by 38 publications

References 11 publications

Firm-Specific Investment, Sticky Prices, and the Taylor Principle

Firm-Specific Investment, Sticky Prices, and the Taylor Principle

Stock Prices and Monetary Policy: Re-examining the Issue in a New Keynesian Model with Endogenous Investment

Bounded interest rate feedback rules in continuous-time

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