Monetary policy and multiple equilibria

This paper characterizes conditions under which interest-rate feedback rule s that set the nominal interest rare as an increasing function of the infla tion rate induce aggregate instability by generating multiple equilibria. I t shows that these conditions depend not only on the monetary-fiscal regime (as emphasized in the fiscal theory of the price level) but also on the wa y in which money is assumed to enter preferences and technology. it provide s a number of examples in which, contrary to what is commonly believed, act ive monetary policy gives rise to multiple equilibria and passive monetary policy renders the equilibrium unique.