Discussion paper

DP3899 Taylor Rules in Practice: How Central Banks can Intercept Sunspot Expectations

This Paper derives new results on the effects of employing Taylor rules in economies that are subject to real-market imperfections such as production externalities. It suggests that rules that should be avoided (chosen) in perfect-markets environments do in fact ensure (yield) unique (multiple) rational expectations solutions in alternative settings. Therefore, exact knowledge on the degree of market imperfection is pivotal for robust policy advice.

£6.00
Citation

Weder, M (2003), ‘DP3899 Taylor Rules in Practice: How Central Banks can Intercept Sunspot Expectations‘, CEPR Discussion Paper No. 3899. CEPR Press, Paris & London. https://cepr.org/publications/dp3899