SOURCE: Federal Reserve Bank of Richmond

Federal Reserve Bank of Richmond

May 19, 2011 15:25 ET

Richmond Fed's Economic Quarterly Explores Taylor Rules and Multiple Equilibria

RICHMOND, VA--(Marketwire - May 19, 2011) - Since late 2008, both inflation and nominal interest rates have been extremely low in the United States. These facts have focused attention on ideas motivated by the theory discussed in several articles by economists Jess Benhabib, Stephanie Schmitt-Grohé, and Martín Uribe -- in particular, that an active Taylor rule, together with a moderate inflation target, could have the unintended consequence of leading the economy to undesirably low inflation with a near-zero nominal interest rate. In the new issue of Economic Quarterly, Alexander L. Wolman and Tim Hursey of the Richmond Fed provide an accessible introduction to multiple equilibria under active Taylor rules by highlighting the ideas in the research by Benhabib, Schmitt-Grohé, and Uribe. The specific model used in this article -- Rotemberg price setting in discrete time -- fits neatly into the frameworks typically used for applied monetary policy analysis.

You can find the full text of this article and others in the latest issue of Economic Quarterly at:

Also in the Fourth Quarter 2010 issue:

  • Hidden Effort, Learning by Doing, and Wage Dynamics by Arantxa Jarque
  • News Shocks and Business Cycles by Per Krusell and Alisdair McKay
  • Risk Sharing, Investment, and Incentives in the Neoclassical Growth Model by Emilio Espino and Juan Sánchez

The Economic Quarterly is a free publication containing economic analysis pertinent to Federal Reserve monetary and banking policy. For free copies or more information, contact the Federal Reserve Bank of Richmond's Research Department - Publications at 800.322.0565 or visit

The Federal Reserve Bank of Richmond is one of 12 District Reserve Banks that together with the Board of Governors in Washington, D.C., make up the Federal Reserve System. The Richmond Fed serves the Fifth Federal Reserve District, which encompasses the District of Columbia, Maryland, North Carolina, South Carolina, Virginia, and most of West Virginia.

Contact Information

  • Contacts:
    John Weinberg
    Director of Research
    Federal Reserve Bank of Richmond

    Amanda Kramer
    Managing Editor
    Federal Reserve Bank of Richmond Economic Quarterly
    Email Contact