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Money targeting, heterogeneous agents, and dynamic instability

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Money targeting, heterogeneous agents, and dynamic instability. / Motta, Giorgio; Tirelli, Patrizio.

In: Macroeconomic Dynamics, Vol. 19, No. 2, 03.2015, p. 288-310.

Research output: Contribution to journalJournal article

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Motta, G & Tirelli, P 2015, 'Money targeting, heterogeneous agents, and dynamic instability', Macroeconomic Dynamics, vol. 19, no. 2, pp. 288-310. https://doi.org/10.1017/S1365100513000394

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Motta, Giorgio ; Tirelli, Patrizio. / Money targeting, heterogeneous agents, and dynamic instability. In: Macroeconomic Dynamics. 2015 ; Vol. 19, No. 2. pp. 288-310.

Bibtex

@article{d7f8cbfc9cc442c9b4a9303f4d78a74c,
title = "Money targeting, heterogeneous agents, and dynamic instability",
abstract = "The limited asset-market participation hypothesis has triggered a debate on DSGE models' determinacy when the central bank implements a standard Taylor rule. We reconsider the issue here in the context of an exogenous money supply rule, documenting the role of nominal and real frictions in determining these results. A general conclusion is that frictions matter for stability insofar as they redistribute income between Ricardian and non-Ricardian households when shocks hit the economy. Finally, we extend the model to allow for the possibility that consumers who do not participate in the market for interest-bearing securities hold money. In this case, endogenous monetary transfers between the two groups make it possible to smooth consumption differences, and the model is determinate, provided that the non-negativity constraint on individual money holdings is satisfied.",
keywords = "Rule-of-Thumb Consumers, Dynamic Stochastic General Equilibrium, Determinacy , Limited Asset-Market Participation , Money Targeting",
author = "Giorgio Motta and Patrizio Tirelli",
year = "2015",
month = "3",
doi = "10.1017/S1365100513000394",
language = "English",
volume = "19",
pages = "288--310",
journal = "Macroeconomic Dynamics",
issn = "1365-1005",
publisher = "Cambridge University Press",
number = "2",

}

RIS

TY - JOUR

T1 - Money targeting, heterogeneous agents, and dynamic instability

AU - Motta, Giorgio

AU - Tirelli, Patrizio

PY - 2015/3

Y1 - 2015/3

N2 - The limited asset-market participation hypothesis has triggered a debate on DSGE models' determinacy when the central bank implements a standard Taylor rule. We reconsider the issue here in the context of an exogenous money supply rule, documenting the role of nominal and real frictions in determining these results. A general conclusion is that frictions matter for stability insofar as they redistribute income between Ricardian and non-Ricardian households when shocks hit the economy. Finally, we extend the model to allow for the possibility that consumers who do not participate in the market for interest-bearing securities hold money. In this case, endogenous monetary transfers between the two groups make it possible to smooth consumption differences, and the model is determinate, provided that the non-negativity constraint on individual money holdings is satisfied.

AB - The limited asset-market participation hypothesis has triggered a debate on DSGE models' determinacy when the central bank implements a standard Taylor rule. We reconsider the issue here in the context of an exogenous money supply rule, documenting the role of nominal and real frictions in determining these results. A general conclusion is that frictions matter for stability insofar as they redistribute income between Ricardian and non-Ricardian households when shocks hit the economy. Finally, we extend the model to allow for the possibility that consumers who do not participate in the market for interest-bearing securities hold money. In this case, endogenous monetary transfers between the two groups make it possible to smooth consumption differences, and the model is determinate, provided that the non-negativity constraint on individual money holdings is satisfied.

KW - Rule-of-Thumb Consumers

KW - Dynamic Stochastic General Equilibrium

KW - Determinacy

KW - Limited Asset-Market Participation

KW - Money Targeting

U2 - 10.1017/S1365100513000394

DO - 10.1017/S1365100513000394

M3 - Journal article

VL - 19

SP - 288

EP - 310

JO - Macroeconomic Dynamics

JF - Macroeconomic Dynamics

SN - 1365-1005

IS - 2

ER -