Investment And Monetary Policy: Learning And Determinacy Of Equilibrium

The authors examine determinancy and expectational stability (learn ability) of Rational Expectations Equilibrium (REE) in sticky price "New Keynesian" (NK) models of the monetary transmission mechanism. They consider three different New Keynesian models: A labor-only model and two models that add capital - one where capital is allocated in an economy-wide rental market and another where demand for capital is firm-specific. They find that Bullard and Mitra's (2002, 2007) findings on determinacy and learn ability of REE under various interest rate rules in the labor-only NK model do not always extend to models with capital.