Loughborough University
Leicestershire, UK
LE11 3TU
+44 (0)1509 263171
Loughborough University

Loughborough University Institutional Repository

Please use this identifier to cite or link to this item: https://dspace.lboro.ac.uk/2134/274

Title: The Taylor rule and dynamic stability in a small macroeconomic model
Authors: Chappell, David
Turner, Paul
Keywords: inflation
Taylor rule
debt-inflation
Issue Date: 2003
Publisher: © Blackwell
Citation: CHAPPELL, D. and TURNER, P., 2003. The Taylor rule and dynamic stability in a small macroeconomic model. Economic Notes, 32(3), pp.361-370
Abstract: In this paper we embed the Taylor interest rate rule in a simple macroeconomic model with Calvo contracts. We contrast this with the case in which the interest rate is determined by the conventional LM curve along with a fixed value for the monetary aggregate. We derive conditions under which the adjustment of the economy is characterised by a unique saddle-path and show that the conditions required for this to be the case are more stringent when the authorities adopt the Taylor rule. In both cases the possible failure of the saddle-path condition arises when there are debt-deflation effects in the IS curve. If interest rates are set according to the Taylor rule, then debt-deflation is always enough to cause the failure of the saddle-path condition. However, when interest rates are determined by the LM curve then it is possible that the real balance effect from the LM curve may offset the debt-deflation effect and produce a saddle-path.
Description: The definitive version: CHAPPELL, D. and TURNER, P., 2003. The Taylor rule and dynamic stability in a small macroeconomic model. Economic Notes, 32(3), pp.361-370, is available at www.blackwell-synergy.com.
URI: https://dspace.lboro.ac.uk/2134/274
ISSN: 0391-5026
Appears in Collections:Published Articles (Economics)

Files associated with this item:

File Description SizeFormat
Chappell and Turner Economic Notes 2003.pdfArticle244.69 kBAdobe PDFView/Open
CoverforPDF.pdfCover sheet27.39 kBAdobe PDFView/Open

 

SFX Query

Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.