On one monthly time-series data set of Vietnam economy over 02/2008–09/2018, the Time-Varying-Coefficient VAR model records that trade-off between inflation and output growth is mitigated by foreign capital inflows. The mostly determined credit supply growth, while largely driven direct investment (FDI) A increase FDI USD 1 billion can raise 1.77% rate. result also holds on accounting for excha...

We examine robustness of stability under learning to observability of exogenous shocks. Regardless of observability assumptions, the minimal state variable solution is robustly stable under learning provided the expectational feedback is not both positive and large, while the nonfundamental solution is never robustly stable. Overlapping generations and New Keynesian models are considered and co...

The conventional policy perspective is that lowering the interest rate increases output and inflation in the short run, while maintaining inflation at a higher level requires a higher interest rate in the long run. In contrast it has been argued that a Neo-Fisherian policy of setting an interest-rate peg at a fixed higher level will increase the inflation rate. We show that adaptive learning ar...

We analyze a monetary model with flexible labor supply, cash-inadvance constraints, and seigniorageand tax-financed government spending. If the intertemporal elasticity of substitution of labor is greater than one, both determinate and indeterminate steady states exist. If the elasticity is less than one, there is a unique steady state, which can be indeterminate. Only in the latter case do the...

We analyze a simple strategic model of interaction between central bank and labor union. We assume that the intransparency of the central bank (labor union) induces Knightian uncertainty faced by the labor union (central bank). Knightian uncertainty means that decision makers are unable to make exact probability judgements. It is modelled by Choquet Expected Utility Theory and its recent applic...

This paper shows that in a small open economy with downward nominal wage rigidity pegging the nominal exchange rate creates a pecuniary externality. The externality causes unemployment, overborrowing, and depressed consumption. Ramsey optimal capital controls are shown to be prudential in the sense that they tax capital inflows in good times and subsidize external borrowing in bad times. Under ...

We explore the connection between shock observability and equilibrium. When aggregate shocks are unobserved the rational expectations solutions remain unchanged if contemporaneous aggregate outcomes are observable, but their stability under adaptive learning must be reconsidered. We obtain learning stability conditions and show that, provided there is not large positive expectational feedback, ...

The present paper analyzes propagation of shocks to food and energy prices in 46 countries with data from the period 1999-2010. The empirical evidence suggests that in only one of the countries considered, a shock to the price of either energy or food shows no propagation to the prices of the goods and services included in the core inflation measure. In general, the propagation effect of food p...

We study what happens to identified shocks and dynamic responses when the data generating process features q disturbances but 1 < variables are used in an empirical model. Identified linear combinations of current past values all structural do not necessarily combine same type. Theory-based restrictions may be insufficient obtain dynamics. revisit evidence regarding transmission house price ...