Business News • MarketWire • Richmond Fed's Economic Quarterly Explores Taylor Rules and Multiple Equilibria |
Richmond Fed's Economic Quarterly Explores Taylor Rules and Multiple Equilibria |
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Richmond Fed's Economic Quarterly Explores Taylor Rules and Multiple Equilibria
RICHMOND, VA--(Marketwire - May 19, 2011) - Since late 2008, both inflation and nominal interest rates have been extremely low in the United States. These facts have focused attention on ideas motivated by the theory discussed in several articles by economists Jess Benhabib, Stephanie Schmitt-Grohé, and Martín Uribe -- in particular, that an active Taylor rule, together with a moderate inflation target, could have the unintended consequence of leading the economy to undesirably low inflation with a near-zero nominal interest rate. In the new issue of Economic Quarterly, Alexander L. Wolman and Tim Hursey of the Richmond Fed provide an accessible introduction to multiple equilibria under active Taylor rules by highlighting the ideas in the research by Benhabib, Schmitt-Grohé, and Uribe. The specific model used in this article -- Rotemberg price setting in discrete time -- fits neatly into the frameworks typically used for applied monetary policy analysis.
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