Publication

This paper analyzes sticky price models with endogenous investment. The authors find that virtually all monetary policy rules that set a nominal interest rate in response solely to future inflation induce real indeterminacy of equilibrium. Applying the Samuelson-Farebrother conditions, they obtain a necessary and a sufficient condition for local real determinacy. They argue that increasing price stickiness or letting policy respond also to current output may help ensure a unique equilibrium.