Investment and Interest Rate Policy

The paper's theorems reverse two standard results of New Keynesian economics simply by appending endogenous investment to a benchmark imperfect competition-sticky price model. Our results are: (a) a passive interest rate rule, where the monetary authority responds to inflation by lowering the real interest rate, implies local equilibrium uniqueness, whereas an active rule generates either indeterminacy or no equilibria locally; (b) a temporary, exogenous increase in the nominal interest rate causes a temporary increase in output and investment.