Impact of Delays in Policy Implementation on Economic Stability under Sticky Prices
Abstract
This study extends the New Keynesian model to examine the impact of delays in monetary policy implementation on economic stability. The extant literature indicates that if a central bank delays its response to the inflation rate, this policy lag may increase the number of positive roots in the model economy, implying that a time lag associated with inflation-targeting policy causes instability or eliminates indeterminacy. However, cases where a central bank considers multiple target variables but only one of them has a lag have not yet been examined. We analyze the case in which the inflation rate and output are the target variables of policy intervention, wherein a delay occurs in the central bank's response to output. We demonstrate that a policy lag may increase the number of negative roots in the dynamic system, implying that instability rather than indeterminacy may be eliminated by a policy lag.
Journal
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- IERCU Discussion Paper
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IERCU Discussion Paper 391 2023-09-19
中央大学経済研究所
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Keywords
Details 詳細情報について
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- CRID
- 1050579212423791744
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- Text Lang
- en
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- Article Type
- departmental bulletin paper
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- Data Source
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- IRDB