Monetary policy and multiple equilibria in a cash-in-advance economy

This article shows that whether active interest rate rules can generate equilibrium uniqueness or indeterminacy depends upon: (1) the magnitude of the intertemporal elasticity of substitution, and (2) the value of the steady state inflation rate. In particular, if the intertemporal elasticity is smaller than one, then an active interest rate rule renders equilibrium indeterminate when the steady state inflation rate is sufficiently high, and ensures uniqueness of equilibrium when it is sufficiently low. (C) 2002 Elsevier Science B.V. All rights reserved.