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Stability Analysis ofDifferent Monetary Policy Rules for a Macroeconomic Model withEndogenous Money and Credit Channel

  • Economics


Microsoft Word - anpec2009h Stability Analysis of Different Monetary Policy Rules for a Macroeconomic Model with Endogenous Money and Credit Channel José Luis Oreiro * Flavio Basilio ** Abstract: Bofinger (2001) had built a macroeconomic model that tried to integrate the financial intermediation feature of the Bernanke-Blinder model with the “exogenous” character of money market interest rate. In the so-called IS-CM model there are two interest rates: the credit or banking interest rate, determined by the interactions between goods market and credit market clearing conditions, and the money market interest rate, set by monetary authorities. Up to now no efforts are made in the way to analyse the dynamics of Bofinger model under different assumptions about the determination of money market interest rate. The objective of this paper is to analyse the stability properties of Bofinger (2001) model under different monetary policy rules. More specifically we will consider four different cases: (a) strict inflation targeting; (b) strict inflation targeting plus anti-cyclical fiscal policy; (c) strict output targeting and (d) “double mandate” for Central Bank (output and inflation stabilization). As we will see, long-run equilibrium of the model can be stable only in cases (a) and (d); which means that the existence of nominal anchor is of fundamental importance for macroeconomic stability. We also conclude that an anti-cyclical fiscal policy is incompatible with macroeconomic stability under a strict inflation targeting regime. Key-words: Monetary Policy, Inflation Targeting, Dynamic Stability. JEL: E50, E31, C62 Resumo: Bofinger (2001) desenvolveu um modelo macroeconômico com o intuito de integrar o arcabouço financeiro da intermediação financeira de Bernanke-Blinder com o caráter exógeno da taxa básica de juros do mercado monetário. Assim, temos o modelo IS-CM onde existem duas taxas de juros, a saber: taxa de juros do crédito bancário, determina

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