Monetary Policy and Multiple Equilibria

Abstract

In this paper, we characterize conditions under which interest rate feedback rules wherby the nominal interest rate is set as an increasing function of the inflation rate generate multiple equilibria. We show that these conditions depend not only on the fiscal regime (as emphasized in the fiscal theory of the price level) but also on the way in which money is assumed to enter preferences and technology. We analyze this issue in flexible and sticky price environments.MONETARY POLICY ; PRICES ; INTEREST RATE