- Real balance effects, timing and equilibrium determination
- Number of pages
- onbekend: Afdeling Algemene Economie
- Document type
- Working paper
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
This paper examines whether the existence and the timing of real balance effects contribute to the determination of the absolute price level, as suggested by Patinkin (1949, 1965). As the main novel result, I show that there exists a unique price level sequence that is consistent with an equilibrium under interest rate policy, if beginning-of-period money yields transaction services. Predetermined real money balances can then serve as a state variable, implying that interest rate setting must be passive - a violation of the Taylor-principle - for unique, stable, and non-oscillatory equilibrium sequences.
- October 2008
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