The paper's theorems reverse two standard results of New Keynesian economic
s simply by appending endogenous investment to a benchmark imperfect compet
ition-sticky price model. Our results are: (a) a passive interest rate rule
, where the monetary authority responds to inflation by lowering the real i
nterest rate, implies local equilibrium uniqueness, whereas an active rule
does not generate a locally unique equilibrium; (b) a temporary, exogenous
increase in the nominal interest rate causes a temporary increase in output
and investment. Extensions of the benchmark model, including generalized p
references and alternative interest rate rules, are also examined. (C) 2001
Academic Press.