Monetary policy, Taylor¿s Rule and Endogenous Fluctuations
ISSN: 2255-5471
Año de publicación: 1999
Número: 19
Tipo: Documento de Trabajo
Otras publicaciones en: Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales
Resumen
The paper analyses the dynamic behaviour of an economy when the central bank (CB) implements an inflation targeting regime. For this purpose, a simple macroeconomic model is constructed and subjected to formal dynamic analysis. A first result is that, under certain conditions, the emergence of endogenous oscillations in the economy is a possible scenario. A second implication is that CBs face two main policy dilemmas: (i) the degree of gradualism adopted when setting the level of short-term interest rates and (ii) the desirability or otherwise of raising interest rates as soon as economic indicators suggest the emergence of inflationary pressures.