Fixed Money Growth Rules and the Rate of Inflation: Global v. Local Dynamics

This paper analyzes a perfect foresight, market-clearing model of a simple monetary economy with real side interactions. The local and global dynamics of the model are compared and shown to have very different implications (including policy implications). In particular, a fixed money growth rule is shown not to be sufficient for the long-run control of inflation in the global version of the model even though it is sufficient in the local version. Analytical and simulation results are presented and the latter briefly compared with empirical data. Copyright 1991 by Scottish Economic Society.