Interest-rate rule and multiple equilibria with endogenous growth

This paper examines the role of interest-rate feedback rule in a monetary endogenous growth model in which money is introduced via a cash-in-advance constraint and long-run growth is sustained by external increasing returns. It is shown that dynamic properties as well as the balanced-growth characterization are highly sensitive not only to the degree of increasing returns but also to the interest-rate feedback rule adopted by the monetary authority. In particular, the conditions for indeterminacy of equilibrium depends heavily upon whether the interest-rate rule is active or passive.