Generalized Taylor Rule and Determinacy of Growth Equilibrium

This paper re-examines equilibrium determinacy under the interest-rate control rules in a simple model of endogenous growth. We use a standard money-in-the-utility formulation with fixed labor supply and an Ak technology under which the balanced-growth path is unique and money is superneutral in the long run. We show that even in this environment the interest-rate feedback rule a la Taylor may produce indeterminacy of equilibrium if the monetary authority adjusts the nominal interest rate in response to the growth rate of real income as well as to the rate of inflation.