What are the consequences for monetary policy design implied by the fact that price setting and investment takes typically place simultaneously at the firm level? To address this question we analyze simple (constrained) optimal interest rate rules in the context of a dynamic New Keynesian model...

We consider a medium-scale New-Keynesian model which combines features that have been shown to explain fairly well postwar U.S. business cycles. Our main result demonstrates that the determinacy properties of forward-looking interest rate rules resemble, at least qualitatively, the corresponding...

The Taylor Principle is often used to explain macroeconomic stability (see, e.g., Clarida et al. 2000). The reason is that this simple principle guarantees determinacy, i.e., local uniqueness of rational expectations equilibrium, in many New Keynesian models. However, analyses of determinacy are...